With so many companies touting debt relief options these days it is easy to see why consumers become confused when seeking debt consolidation help. Before you obtain a debt consolidation loan or enroll with one of the countless debt consolidation companies you should be able to answer the following questions:

• What is debt consolidation?
• How do debt consolidation loans work?
• What is the difference between debt management and debt settlement?
• Can you distinguish legitimate debt consolidation companies from fraudulent ones?

A debt consolidation loan is the most common form of debt consolidation. In this scenario the consumers obtains one new loan in order to pay off other forms of debt, such as credit cards and medical bills. Ideally the new loan will have an affordable monthly payment and lower overall rate of interest than their previous debts. In recent years, banks have tightened their lending standards and debt consolidation loans have become more difficult to qualify for, often requiring the borrower to have excellent credit and/or provide collateral (such as your home or car) to qualify. One issue that debt consolidation loans do not address is consumer behavior. If a consumer uses a debt consolidation loan to pay off past debt but does not change their spending habits, they may end up with more debt than they initially started with.

Instead of obtaining a new loan many consumers opt instead to enroll with one of the many debt consolidation companies that provide debt relief solutions. Most of the debt consolidation programs fall into one of two categories, either debt settlement or debt management. There are significant differences between these programs and consumers should understand the advantages and disadvantages.

With debt management, the company will set the consumer up with one monthly payment and disburse that payment up amongst the client’s creditors each month. The client’s creditors in turn agree to reduce the interest being charged but will also require that consumer close their credit line, which may adversely impact a consumer’s credit score. Additionally, these plans still require the consumer to pay 100% of their balance plus interest and thus often extend up to five years or more.

An alternative to debt management is debt settlement. With debt settlement the company seeks to reduce the principle of what is owed, not just the interest rate. This option may allow a consumer to payoff their debt faster than either a debt consolidation loan or debt management; however, it does have drawbacks, such as negative credit impact and possible tax or legal consequences.

Once you have a firm grasp of the debt consolidation programs available, it is equally important to research the company you intend to do business with. Use the Internet to research debt consolidation companies to make sure they are not fraudulent. For instance, if you searched for Debt Consolidation San Diego online, you might come across our company Pacific Debt, Inc. Pacific Debt has been in business for close to ten years and is an accredited member of the Better Business Bureau. We offer a free no obligation consultation and are happy to review with you all of your questions regarding debt consolidation and the options available to you.