The first thing to get straight is that debt consolidation is completely different than debt negotiation or debt settlement. When people refer to debt reduction, debt relief, or debt negotiation, they are not referring to debt consolidation.

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Debt consolidation is a loan and debt negotiation is a service. With debt consolidation, you get one big loan to pay off a bunch of little loans. With debt negotiation, a service contacts your current debtors and negotiates a deal with them in order to lower your monthly payments.

What to do about it

Now that we have successfully defined just what debt consolidation really is, what can we do with it?

A debt consolidation loan can get you out of trouble if you use it wisely and if you choose the right loan company to go with. So how do you know which debt consolidation loan to choose?

You want a debt consolidation loan that does not include hefty fees or 'points' as they are sometimes called in the lending industry. This is a fee above and beyond the interest that you will pay.

Most people who are in need of debt consolidation, don't have very good credit and don't have much bargaining power. There are plenty of predatory debt consolidation companies that are more than ready and willing to benefit from this.

If you have bad credit then you probably can't qualify for one of those attractive debt consolidation loans that offers a low interest rate and no fees. However, you can still shop around and try to find the best deal possible. Another option would be to simply go with a debt negotiation service like NetDebt, CuraDebt or Debt Shield and have them negotiate a better deal with your creditors.

Take a look at the bottom line. Add up your current minimum monthly payments on your credit card debts and then add another 10%. You don't want to pay just the minimum monthly payment because, in many cases, you could be getting more and more in debt each month. This is why you should pay at least 10% more than the minimum amount.

Now take a look at the prospective debt consolidation loan. Your debt consolidation loan will feature one monthly payment rather than the many different payments that you had before. If the new monthly payment that is available with the prospective debt consolidation loan is considerably less than the total of your previous monthly payments when added together (plus 10%), then you might be able to weather the storm and eventually get out of debt with a consolidation loan.

The reason for the question mark in the title above is that this idea could save you even more than a traditional, non-secured debt consolidation loan but it could also get you into more trouble than you started with.

If you own a home, you could take out a home equity loan in order to pay off your revolving credit card debts. Home equity loans generally come with much better terms and lower interest rates that the other types of debt consolidation loans.

This is something that you should be very careful with though. You could end up losing your house. If you are even considering taking this type of action, be sure to get some professional advice and think over your options very carefully.

One of the best ways to decide between debt consolidation and debt negotiation is to compare offers side by side. Sometimes this decision is made for you. Not everyone can qualify for a debt consolidation loan. Debt negotiation is generally considered to be the option to take when debt consolidation fails.

With debt consolidation you don't get to keep your active credit card accounts. Once you get your debt consolidation loan, your other accounts are canceled. With debt negotiation (sometimes called debt settlement), you keep your credit card accounts but you owe less on them or you have your monthly payments reduced.

Using debt negotiation will hurt your credit rating while you are actively under this type of program. A debt consolidation loan will not have this affect. It could even help.

Either way you choose, do keep the big picture in mind. If you are like most people who are having problems with debt, just about anything will be better than simply doing nothing. Bankruptcy is the last resort and can affect just about anything that you try to do for the next 10 years.

With that in mind, you might want to look into debt consolidation loans first and if that doesn't work, try debt negotiation. If neither of these option pans out then get a good attorney and look into your options under the bankruptcy laws.