There is much more to debt consolidation than merely getting a loan and paying off your credit cards. For most people, in most circumstances, debt consolidation is finally realized through the use of a debt settlement program or similar options.

Sometimes referred to as debt negotiation, a settlement program can help you actually eliminate your debts in their current form. Instead of having many different monthly payments to many different creditors, you would simply have one consolidated payment.

Your new consolidated payment would ideally be less than all of your previous payments, when added together. If this were not the case then there would be no reason to seek a debt consolidation solution. Debt settlement is only one of your options.

Consolidation or Bankruptcy?

When deciding whether or not to consolidate your debt, keep in mind that the only other options are bankruptcy or simply doing nothing. If you do nothing then your creditors will surely come after you. This is not really an option that's worth considering.

One of the other options is bankruptcy. If you choose bankruptcy then you will be credit challenged for many years. Put simply, you will have a difficult time getting any type of loan. Sure, there are plenty of financing options for people with bad credit or a previous bankruptcy but those options are generally not very good.

Bankruptcy can also affect your ability to do simple things like get a job, rent an apartment, rent a car or even to get basic utilities like cable, phone and internet services. People who go bankrupt are usually surprised by the number of road blocks that they face.

It is possible to actually get a consolidation loan that can be used in order to pay off, or consolidate, all of your other unsecured debts. The question that you would need to ask yourself is whether it would be most beneficial to get an additional loan or to simply negotiate with your current creditors.

A debt consolidation loan can either be a personal loan or it can come from the equity in your home. You can refinance your home or take out a home equity loan in order to pay off your credit card debt or other types of unsecured debts.

The other loan option is a personal loan. This type of debt consolidation loan is probably a better option since you wouldn't be putting your home on the line. However, it can be quite difficult to qualify for a large personal loan, especially if your credit rating has already suffered from being in excessive debt.

The good news is that you don't need to qualify for a loan in order to take advantage of the other option, debt negotiation.

In its most simple form, debt negotiation is a process that is fairly easy to understand. You simply contact your creditors and negotiate a better deal with them.

If your credit card companies and other creditors realize that you are in financial trouble, they will most likely be willing to work with you in order to lower your monthly payments.

They will work with you because the only other option for them is to just take their chances if you happen to go bankrupt. If you were to choose bankruptcy then they would probably get nothing.

The problem with debt negotiation is that it can be difficult to accomplish on your own. However, their are a few companies that can take care of this for you.

They will contact your creditors and negotiate with them on your behalf. In general, they will usually set up a separate account for you. You will then make monthly payments into this account and the debt negotiation company will then use the money from this special account in order to pay your creditors.

They will be paying your creditors less than you were previously paying because they will have negotiated a better deal. The way that these debt negotiation companies make money is by taking a cut from the difference.

For instance, let's say that your total monthly payments on your credit cards adds up to $500 per month. The debt negotiation service may set up an account for you and require you to deposit $250 per month into that account.

They will have negotiated with your credit card companies so that the monthly payment to them is only $200. So, the monthly savings would be $300. It doesn't really matter to you because you will only be paying $250 per month to your special account. The debt negotiation company would keep $50 per month as their fee (You pay them $250 and they pay your creditors $200).

Keep in mind that this is merely a very simplified version of how the process works. There are other factors that are implemented in the equation so that the debts can be paid down and eventually eliminated. The entire debt elimination process can take anywhere between 2 and 5 years.

As you can see, there are a variety of things to keep in mind when you are thinking about consolidating your debt. You might want to get some debt counseling or enlist the services of a financial counselor before making any big decisions.