These are the most common questions I am asked on a day to day basis. First of all, there are many different debt relief programs that you should be aware of. There are debt consolidation, debt management and debt settlement programs. Debt consolidation is getting a loan from a bank and paying off all your creditors and consolidating everything into one payment. Debt consolidation is often confused with the other programs mentioned because with debt settlement and debt management you are only making one payment and all your creditors are also consolidated. Debt consolidation is usually a good option if you have a good credit score, but that doesn’t seem to be the case with most people.

Most people looking for debt consolidation are depleted on their credit cards and don’t have a decent enough credit score to qualify for a consolidation loan. Or if the score is decent enough, the interest rate on the loan doesn’t always make sense to proceed with the consolidation. If you get a debt consolidation loan, your credit will be fine. Your credit score will likely take a hit from opening a new loan which will reduce the length of your credit history, but you will now have $0 in revolving expenses. And revolving expenses typically account for about 250 points of your credit score. Therefore, debt consolidation will affect your credit in a positive way.

Debt management, which is very similar to consumer credit counseling, is where all of your credit card interest rates are reduced along with your monthly payments. In general, this will negatively affect your credit. What happens is that when you go through a consumer credit counseling service, the creditor usually reports CCCS or third party assistance. And in the eyes of the banks that looks just as harsh as a Chapter 13 bankruptcy. So make sure you know which program makes the most sense for you before you join.