What is Debt Consolidation?
Debt consolidation typically involves getting a lower interest loan to pay off multiple high interest secured or unsecured debts, such as credit cards or payday loans. The consolidation loan is generally secured against the borrower’s assets such as a home or a car. Because credit card debts have such high interest rates, even an unsecured consolidation loan can significantly reduce the borrower’s monthly payment. For some this is enough to get them on the right track financially.
Even if you have less than stellar credit, there is no need to worry because many lenders are still eager for your business. Do some thorough research. Choose a lender that is reputable and make sure that the terms of a consolidation loan are fair.
What is Debt Settlement?
Debt settlement can be far more risky than debt consolidation. Some experts who have studied the debt settlement model cannot even agree that it is legitimate. This approach can actually lower a borrower’s credit score by 65 to as much as 125 points. Debt settlement is dangerous and has many pitfalls.
Debt settlement companies have many fees which can make a deal unattractive for both the borrower and the claimants. Upfront fees, although not supported by the Federal Trade Commission, are often charged by debt settlement companies. If not, they may tack on a huge fee when you are finished with the settlement.
These companies often keep your money in their accounts, and wait until it’s a large enough sum to settle with the creditors, leaving your debts unpaid for an unspecified period of time. Even one missed or late payment can cause a negative credit mark that will remain on the borrower’s credit history for up to seven years.
Non-profit Credit Counseling Debt Management Programs
A debt management program is by far the safest and most reliable route to take if you are unable to control your spending. By scheduling a credit counseling session, a certified credit counselor can assist you in creating a plan and a realistic budget. If repayment of bills is difficult, a credit counselor may recommend a debt management program. They work in cooperation with your creditors.
With debt management programs you make one monthly payment to the credit counseling agency, which will be disbursed automatically to your creditors in the agreed-upon amounts. You will pay your debts back in full and not have to worry about late or missed payments. In a debt management program, late fees and over-the-limit fees are usually eliminated altogether. The credit counseling agency can usually reduce high interest rates as well to help you pay off the debt at a much faster pace. Debt management programs lasts from 36-60 months.
Need help?
If you are in a bad financial situation due to high interest unsecured debt, your first choice should be a debt management program offered by a nonprofit credit counseling agency. 
By Lauralynn Mangis Lauralynn Mangis is the Online Marketing Specialist at Advantage Credit Counseling Service. She writes regularly for Advantage CCS’s Blog. Advantage Credit Counseling Service is a member of the National Foundation for Credit Counseling.