Debt Consolidation Programs Versus Loans

Consumers are easily confused about how debt consolidation works because the industry uses interchangeable terms.

Both approaches work very differently and have unique pros and cons. Explore each alternative to decide which is best for your needs before taking the plunge.


A debt settlement program means that you consolidate your payments to multiple creditors in an effort to negotiate relief. If successful, the creditors agree to forgive a portion of what you owe in exchange for immediate partial payment.

In order to qualify for a settlement program, you must owe more than $10,000 in unsecured debt (credit cards, medical debt, personal loans) and have enough income to fund an escrow account with 1/3 of the amount owed.

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Consolidation Loans

A debt consolidation loan means that one new lender pays off what you owe to multiple old creditors. You then repay the new lender under different terms (interest rate & the number of payments).

In order to qualify for a consolidation loan, you must have a good credit score and enough income to handle the combined monthly payment to the new lender (after meeting your other living expenses such as housing and transportation).

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Free Government Debt Consolidation Programs & Loans?

The government does not offer or approve debt consolidation loans, relief options, or forgiveness programs for private obligations in a direct fashion.

However – federal and state agencies enact laws that regulate related activities. People who owe large sums on their credit card, mortgage, or hospital bills will benefit from knowing the consumer protection rights that they have.

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Unsecured Personal Loans with High Debt to Income Ratio

Applying for a personal loan online may be the first place to look if you are someone with a high debt to income ratio.

Consolidating your accounts into one can dramatically reduce your monthly payments if only you can find a lender willing to approve your request. In addition to working with a broad network of willing lenders, you can improve your chances by reducing your payments, or increasing your income.
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The most important credit bureau is the one your lender will use on your next transaction. However, when buying a house, mortgage companies pull reports from all three agencies.

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