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This is not as simple a question as it may seem. There are several types of debt consolidation services. Each of them can have different effects on your credit score. Understanding the different types and the pros and cons of each will help you choose the one that has the least impact on your credit. There are three types of debt consolidation services available, there may be variations of each, but essentially, they will fall under one of three categories.

Credit Counseling

Credit counseling, is a very common form of debt consolidation. Debt counseling is a way to make one payment directly to the credit-counseling agency. The agency then distributes that payment out to the creditors. They make money by commonly charging fees, and getting lower interest rates from lenders. Credit counseling usually lowers your monthly payment, and you're paying back 100% of your loan. Most credit-counseling does not effect your FICO score, but being enrolled in these programs does show up on your credit report. Creditors may view this as something akin to bankruptcy, because it shows that you may not manage your own money. This is a good form of debt consolidation if you have high interest credit cards and just want a lower monthly payment. Typical time to debt freedom is around five years.

Debt Settlement/ Debt Negotiation

Debt settlement, helps to cut your total debt and provide you with lower monthly payment. These short programs allow you to save money and avoid bankruptcy. This does have a negative impact on your credit rating. During the duration of your settlement, you are not making payments to your creditors. This negative credit rating will last for at least the length of the settlement time, perhaps longer, depending on what you do to repair your credit. The advantage is that it's the fastest and cheapest way to freedom from debt, allowing you to save money. The downside is that it has a negative impact on your credit rating.

Debt Consolidation

Loan Most people think of this loan when they hear about debt consolidation services. Many people do not understand that this is usually reserved for people with equity in their homes. The option normally places a second home loan against the house; this loan is low interest rates and can be added to the length of your home mortgage. There are no negative impacts to your credit, and the new loan carries a lower interest rate and is tax deductible. So it should be targeted at high interest credit card debt. The disadvantage to this is that it normally increases the total cost of the loan. The monthly payments are lower. You should keep in mind the risk to this type of consolidation is that it can place your home in risk of foreclosure should you start missing payments.

To sum up, by researching and comparing as much debit consolidation providers, consumers will be able to determine the service that meet your specific financial situation, moreover, besides the cheaper interest rate the debit consolidation market is offering. However, it is advisable to work with a seasoned and reliable debit counselor before a conclusion is made, this way you save time because of seasoned advise and money by obtaining better results in a reduced span of time.

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Tags: Debt, debt consolidation, debt relief, debts