Picture the following scenario: You wake up early on a Saturday morning, rested from a solid night’s sleep because you didn’t toss and turn from financial worries all night. As you eat a hearty breakfast, you’re not afraid to check your email because there aren’t any overdue notices from credit card companies. Today is the day you’ve decided to buy a new TV, and you’re excited—not just because your home entertainment center is going to be so much more awesome, but because you’ve been saving money for this purchase for almost a year. You won’t owe a single monthly payment because the TV will be yours, paid in full. It doesn’t matter that your credit score is improving; you won’t be paying with a credit card, and you won’t be amassing new credit card debt.

For many Americans, this may seem like an unattainable dream, especially now. Households across the country are getting buried under a staggering amount of existing debt, unsure of where to find debt relief.

Maybe you count what you owe among the $14 trillion (and climbing) that American households carry in consumer debt. Your financial worries may include a credit card balance, student loan, home equity loan, installment loan, unsecured loan, and/or multiple debts.

And maybe you’ve heard about debt consolidation as a way to find debt relief. If so, you probably have questions. Let’s dive a little deeper and look at the most frequently asked questions about debt consolidation...

What is Debt Consolidation, and Should I Consolidate?

Let’s unpack this topic in three pieces:

What is debt consolidation? - Much like credit counseling or a balance transfer, debt consolidation is a tool. The aim of this tool is to help you find debt relief from credit card debt by paying it off as conveniently and quickly as possible. The problem most consumers face with credit card debt is that, as they carry a balance over from month to month, they often fall victim to multiple impossibly high interest rates (also known as the Annual Percentage Rate, or APR). A financing company can help you settle those various credit card debts immediately through a debt consolidation loan, allowing you to make one simple monthly payment—ideally at a much lower interest rate.

How debt consolidation affects your credit - A major concern we hear a lot is: How does debt consolidation affect my credit? Over time, consolidating your debt and paying it off (on time) should help you improve your credit score. Doing nothing and getting deeper and deeper into debt can hurt your score. For this reason, a debt consolidation company like ours can help you improve your credit score in the long run.

How debt consolidation companies work - Different companies work in different ways, but in our case, we operate under the following principles: First, your existing credit score doesn’t matter. Second, you won’t be required to provide collateral. Third, we will not ask for your social security number. And fourth, we focus on credit card consolidation, helping you get out from under high interest credit card debt. We consolidate the balances you hold on credit cards, allowing you to make a single monthly payment.

How Do Different Debt Consolidation Programs Work?

Now that we’ve explained how debt consolidation loans work, you might be interested in other methods one can use to consolidate debt. Some consumers choose to try to negotiate their own terms with lenders. This can be useful because our focus is on helping customers settle high interest credit card debt, and we wouldn’t be able to help negotiate better terms for a student loan, auto loan, home equity loan, or other debt. Still other consumers have been able to maintain a high enough credit score and income level to perform their own debt consolidation program with a balance transfer.

How Does Debt Consolidation Differ From Debt Relief?

We often use the term “debt relief” to talk about helping our customers find relief from high interest credit card debt. Our customers use our debt consolidation loan to help them pay off their debt in more accessible terms.

Debt relief can also be used to refer to other options (aside from credit card debt consolidation) such as filing bankruptcy or using the services of a debt settlement company. Unfortunately, bankruptcy can leave a huge negative impact on one’s credit rating and credit history—for a whole decade. A consumer with a recent Chapter 7 bankruptcy can face difficulty finding a job, an apartment, a car loan, and even affordable auto insurance rates. A debt settlement company can also leave a negative imprint on your credit history.

Is Debt Consolidation Right for Me?

The best way to determine if debt consolidation is right for you is to do what you’re doing right now: research. But however you choose to get out of credit card debt—whether you’re beholden to one credit card company or many—it’s important to avoid making the same financial choices that land you right back where you started. One-on-one credit counseling may help, but there are free resources to help you live debt-free as well, such as podcasts, YouTube videos, and library books. Research and education can help you stay on course in times of increasing financial uncertainty.