Are you having a problem with debt? I saw one report recently that 30 million Americans have debts subject to collection. This means that 30 million people are so behind in payments on their debts that they may be turned over to debt collectors. People who fall into this category have options for dealing with those debts and one of the most popular is credit-debt consolidation.

What’s meant by credit consolidation?

When most people use the phrase, credit consolidation, what they usually mean is credit-debt consolidation or more simply just debt consolidation. This is defined by the online encyclopedia, Wikipedia, as “taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.”

Too narrow

This might be a good definition for one type of credit-debt consolidation but is far too narrow as there are a number of different ways to consolidate debts. In fact, people who search Google on the term credit consolidation will get more than 45 pages of results – or links to pages that are associatedwith the term “credit consolidation.” These pages range from “credit card debt solutions” to “debt consolidation help” and from “non-profit credit counseling” to a “debt consolidation calculator.”

The four ways to consolidate debts

People who are interested in consolidating their debts have a number of options. The four most popular are probably first, get a loan from a financial institution (as Wikipedia defines debt consolidation). Second, would be to obtain the help of a consumer credit counseling agency. Third are credit card balance transfers. And fourth, would be to use one of the many creditconsolidation companiesavailable.

The types of companies

There are three types of credit consolidation companies. The first is those companies that consolidate debts by arranging for loans to pay them off. Its clients then pay back the loan over some number of months.

The second is credit counseling, which is designed to help people restructure their finances and develop debt management plans (DMPs). These plans can usually help a person become debt free in about five years.

The third way to consolidate debt, which has grown in popularity over the past few years, is called debt settlement.

How debt settlement is used to consolidates debts

Debt settlement requires that a person or company negotiates with creditors to get his or her debts reduced and then settled. Debt consolidation occurs when the person or family hires a debt settlement company to negotiate with all of that person’s creditors. Once all creditors accept the settlement offers, the company’s client will no longer be required to pay them. Instead, he or she will send the debt settlement company one payment a month until the settlement plan has been completed.

Why most people choose debt settlementcompanies

People choose debt settlement companiesfor several reasons. First, it’s a way to get debts consolidated without having to borrow more money. Second and probably more important, it’s the only way to get debts reduced versus the other options that simply move the debts from one set of creditors to another.

Not for everyone

While debt settlement can be a good option for many people, it’s not for everyone. As a rule, people need to be more than $10,000 in debt and at least six months behind in their payments for debt settlement to be a viable option. It’s also important to understand that debt settlement will have an adverse affect on a person’s credit score though not as serious a one as declaring bankruptcy would.