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Types of debt consolidation and definitions.

Debt consolidation, settlement, elimination, and the other terms that are defined below are just a few of the many phrases and words that you may hear when researching and learning about types of debt consolidation. If you learn more about these various debt consolidation terms, get definitions of them, and learn what they mean, then you will be have a much better chance of reducing or even completely eliminating your debt and becoming debt-free.

First, we need to define exactly what is debt consolidation. This broad term is used to describe any program in which you combine your various debts and/or bills into one payment, which makes it much easier to pay off your debt. In addition, it will offer you the means of eliminating late fees, miscellaneous charges, and it will also help you lower the interest rate that you pay, thus saving you on interest expense. Read a FAQ on debt consolidation.

What is unsecured debt? It is the type of debt that has does not have any collateral. Some of the most common types of this debt include hospital bills and credit cards. Any loans or debts that you have on possessions such as cars, houses, boats, motorcycles, or other physical, items are not considered types of unsecured debts.

What are credit card assistance programs? A growing number of credit card holders are beginning to provide consumers with assistance programs to help consolidate and get rid of credit card debt. Many are now realizing it is better to work with consumers to get some debt paid, rather than have the consumer declare bankruptcy in which case the credit card company will not receive any payments from the consumer.

What is a home equity loan? And how is this debt consolidation? This is when a homeowner has a type of loan that is made possible by using the equity in the person’s home. A home equity loan can be used to pay off bills, help to reduce and pay down debt, or it can even be used to repair or improve a home. Also, it is possible that if you go ahead and make repairs, or more likely improvements to your home that increase your property’s value, you could even gain the benefit of lowering the interest rates you would have to pay. A home equity loan  can be used as a form of debt consolidation, however there you can expect to pay higher interest rates with each payment that you make on the loan.

I have heard of debt reduction. What is it? This is a way for people with bad or borderline poor credit to get help, and it allows them to make use of the various types debt reduction techniques. Debt reduction will typically involve the use of specialized services. For example, the debt reduction company will usually operate by getting their clients to withhold certain debt and bill payments to some creditors for at least six months in order to accumulate the cash that is needed to negotiate new payment terms on the loan or debt. By using these types of debt reduction services, the downside is that you are essentially destroying what remains of your credit rating and scores. The poor credit that will result from debt reduction should relegate debt reduction to a extreme measure, and usually one of last resort. Find how to improve your credit.

What is the definition of debt settlement? This is a type of debt consolidation in which the decision of a creditor is to accept a percentage of the outstanding loans, bills, or debt that is owed to them if there is no possibility of full remittance. What happens is that the creditor would rather settle for getting something from you verses having you go into bankruptcy or risk you not paying them anything. Debt settlement can be effectively used with unsecured loans such as a medical bill, or credit card debt, in which the creditor would settle for some 30 to 70% less than the actual balance that you owe them. Debt settlement will also negatively impact your credit score since the accounts you have with the creditor will indicate that they were paid as agreed upon by a side deal, which basically means nonpayment to credit rating companies. More on debt settlement.

Before you move forward, and as you conduct a search for debt assistance and help with paying debt, make sure that you are both very knowledgeable about the definitions and types of debt consolidation, and always be careful about the different options and companies. Knowing the various types of debt consolidation terms can help you make sense of the numerous options and jargon, and it can also help you better equip yourself to find the best debt reduction solution for you.

What is a debt counselor? A debt counselor is a company or person that can help you through the consolidation  process. They will help you contact your creditors, negotiate the terms, and do whatever it takes to provide you the tools you need to consolidate and reduce your debt. More on debt counselors.