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Last Updated: February 2024
Credit card, medical, and student loan debt can feel daunting. Get a helping hand with the best Debt Consolidation Programs of 2024.
How Does Debt Consolidation Work?
Debt consolidation is the process of taking out a single new loan or balance transfer credit card and using the funds to pay for multiple existing debts. You can consolidate your debt with the help of a professional team or on your own.
A professional debt consolidation company can help you identify the best strategy and loan options for the types of debt you carry, saving you headaches throughout the process. Alternatively, you can take on this research and planning yourself and open a loan or credit card directly.
Is Debt Consolidation A Good Idea?
For many people, the answer is yes. Debt consolidation can be a good way to simplify or lessen your financial burdens in a few different ways:
Unlike debt settlement, debt consolidation doesn't promise to reduce your total current debt, but it does offer you a way to make your financial life simpler. It's also a less risky strategy; debt settlement requires you to stop paying your bills so the company can negotiate with your creditors and "settle" your debt for less, which can cause a significant hit to your credit score.
While completing the final application for a debt consolidation loan will briefly hurt your credit for a few points—the lender will run a hard credit check after you've pre-qualified and want to continue the application—as long as you make payments, your credit should recover in a few months.
Secured vs. Unsecured Debts
Debt settlement companies typically only work with unsecured debts (like medical bills, personal loans and credit cards). Secured debts—those backed by collateral, like car loans and home mortgages—can sometimes qualify for debt consolidation strategies but generally won’t qualify for debt settlement strategies.
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