If you ever surf the internet, watch television, or listen to the radio, then you most likely have heard several advertisements for debt consolidation. However, the advertisements are often vague on what exactly this term mean. To make matters worse, the term debt consolidation can mean several different things.

One of the most common forms of debt consolidation is a debt management plan, or DMP, also known as credit counseling. With this form of consolidation, there is no loan involved. You make one monthly payment to the consolidation agency, and they pass it on to each of your creditors. In return, you should receive lower interest and waived late and over the limit fees. Your account can be brought up to date, and you can pay it off much faster than you could on your own. The major drawback to this form of consolidation is that you must close your accounts.

Another common form of consolidation is a loan. A loan can be a home equity loan, which is secured by your house. You have to own a home (and have equity in it), and you have to have decent credit to qualify. While a home equity loan can substantially reduce your monthly payment (and may lower your interest rate as well), the major drawbacks are that it is harder to qualify for, and that you are now risking your home to pay off what used to be unsecured debt. Many banks and credit card companies also offer unsecured loans to consolidate debt. These loans generally still have high interest rates and, again, you usually need good credit to qualify.

Other services are advertised as forms of debt consolidation, but do not consolidate your debt at all. Debt settlement is one example of this. With debt settlement, you generally pay a company monthly, but they do not pay your bills at all. Instead, the settlement company holds on to your money until you have enough saved up to settle your debts. This can be disastrous for your credit, and there is no guarantee that you will be able to settle all of your debts. You will also be charged a hefty fee.

Another deceptive form of advertising that is common today is coming from bankruptcy attorneys advertising as debt consolidation. While bankruptcy may be able to wipe out some of your debt, it should only be used as a last resort, after all other options have been exhausted. Bankruptcy has far reaching negative consequences, and will stay on your credit report for up to 10 years.

Due to the many options available, it is very important to research each option and decide what is best for you. Most importantly, be sure to thoroughly check out any company that you are considering working with to consolidate your debt.