The DebtClear Roadmap

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Debt Consolidation

What Is Debt Consolidation?

Debt consolidation (sometimes referred to as credit consolidation) is a well-known and often misunderstood debt relief option. Generally, debt consolidation programs combine multiple debt accounts into a single account—ideally with a lower interest rate and lowered monthly payments.

Debt consolidation programs come in three flavors:

  1. A secured loan (like a home equity loan) taken out to pay off your smaller accounts,
  2. An unsecured loan (like an introductory rate credit card offer) used to pay off higher interest rate accounts,
  3. Or a debt management company that works directly with your creditors to lower your interest rates and monthly payments.

Debt management programs are offered by consumer credit counseling services and technically aren't debt consolidation per se. Although you pay a debt management program directly, and they in turn pay your creditors, you still owe each of your creditors individually. With a secured or unsecured loan you are paying off individual creditors and consolidating those individual accounts into a single account.

Choosing the Right Debt Consolidation Plan

Choosing the right debt consolidation plan means understanding the pros and cons of each approach. It is important to note that consolidation debt relief comes from lowered interest rates, not principal reduction. Interest is what makes borrowing money so expensive for us and profitable for creditors. Lowering interest rates through credit consolidation can mean a more manageable monthly payments and an accelerated pay-off period.

You are likely to enjoy the best rates with a secured debt consolidation loan. Secured debt is less risky for creditors because some type of collateral secures the loan. In the case of a home-equity loan your home secures the loan. The downside of a secured loan is that if you default, your collateral is at risk.

You may be able to get even better rates, at least initially, with unsecured loans in the form of introductory rate offers. But here is the catch: the creditor is counting on the fact that you won't pay off your loan before the introductory rate expires and you will have to pay the higher, non-introductory rate on the remaining balance. For this form of debt consolidation to pay off, you usually have to keep transferring balances to new introductory rate offers. Doing so could negatively impact your credit rating and affect your ability to qualify for these offers in the future.

Lastly, debt management plans provided by consumer credit counseling services provide the convenience of making a single payment and lowered interest rates, but may impact your ability to access additional credit while in the program.

Pros and Cons of Debt Consolidation

Below are the pros and cons to consider with debt consolidation.


  • Lower interest rates
  • One check to write each month
  • Maintain a positive credit rating


  • Secured loans transform unsecured debt into secured debt
  • Can create the false sense that all is okay with your finances, and may encourage additional spending
  • The credit card shuffle (switching from one introductory rate to another) may negatively impact your credit score

Is Debt Consolidation Right For You?

Because debt consolidation doesn't offer much debt relief, it is really best suited to someone who just needs a little help lowering their monthly payments and interest rates. You will still pay back 100% of what you owe, but your monthly payments will be more manageable. To find out if debt consolidation might be right for you, explore the links and partners you see on this page.

If you are looking for more debt relief than a consolidation debt relief plan can provide, consider looking into bankruptcy, debt settleme="interlink" title="debt settlement">debt settlement, debt restructuring or following the DebtClear program. Each of these programs offers significant debt relief when compared to a debt consolidation plan.

If you can qualify for a secured or unsecured debt consolidation loan, one huge advantage you will have over other debt relief options is that you maintain a positive credit rating. Keep this fact in mind when shopping around.