- Adem Selita
Debt Consolidations & Such
Updated: Oct 29, 2020
Debt Relief, Debt Consolidations and Why So Many People Confuse These Terms.
Okay, so first things first. By definition, a consolidation is the action or process of combining a number of things into a single more effective or coherent whole.
Stock prices go through a consolidation process — although as Donald Trump would surely tell you — they’ve mostly just been going “up” lately. That snooze fest five-year period where Disney stock went back and forth from $90 to $120 for five years, making every grandma that gave their grandkids Disney shares for Christmas look like terrible stock pickers (Thank you Nana — I held them lol), that was actually a period of consolidation.
An estuary is the result of a consolidation. YES! An estuary, ladies and gentlemen. Literally one of Mother Nature’s most magnificent examples of a consolidation (sorry igneous rocks and soil consolidation). A freshwater river flowing into that eventual point of connection with the sea, morphed and merged, in order to create something entirely different — an ecosystem better suited for different types of life.
When you’re a child, your knowledge and understanding of the world consolidates until you become self-aware and perceptive. Hell, even our lives go through a consolidation process (i.e., my incoherent and ever-confusing NYU college years helping me transform into the reasonably coherent man I am today).
So now that I’ve gotten my point across and you as a reader fully understand that basically everything is a consolidation, let’s clear some things up.
Technically speaking, a debt consolidation can refer to a multitude of different debt relief options. So, the insane amount of consumer confusion that occurs with these options and in this industry as a whole is 100% understandable. Debt resolution programs, debt management programs, debt consolidation loans, debt relief programs, the list goes on and on. All of the above options are technically a debt consolidation. When you have 10 credit card accounts with balances and you begin making just one payment for whichever of the above options, you have one consolidated monthly payment. But the differences really end there. As each has its own financial implications and benefits.
Consolidations can help because they make things easier and simpler. The genuine idea is that if you have separate but similar financial products or goods, the act of combining them into one should make your life easier and add value. It makes sense in theory, but all these options are actually very different and the best one for you really depends on your situation.
Debt Consolidation loans are really hard to qualify for (sometimes you also have to collateralize them with property) and a lot of times they don’t really save you much in interest payments. These options will really depend on your overall credit worthiness. Loans are definitely not recommended for the fiscally irresponsible (bare in mind your credit card balances will go to zero with this option — don’t be tempted!). In addition, with a consolidation loan, you are basically robbing Peter to pay Paul. However, if you can qualify for a decent debt consolidation loan this may likely be one of the better options.
Debt relief programs or debt settlement programs are great options for most since they provide the most payment relief. With a debt settlement program, you are negotiating an entirely new payback term with the creditor and paying back less than you owe. So, this option will typically provide the most saving. However, they are only recommended, if you can find a trusted company and their ability to collect fees is contingent upon your success in their program. The principal savings they provide for you should be tied to the debt relief company and its ability to collect fees from you. This way, they are incentivized to do the absolute best job for you. If the debt relief company charges up-front fees — watch out — as that is a major red flag. No honest company will take fees before they are able to save you money. Moreover, this option is not recommended for someone that needs their credit as high as possible and plans on acquiring a home mortgage in the near future.
Debt Management Programs (DMPs) are options in which you pay a monthly fee to a company that will negotiate better interest rates with your creditors. The fees you pay typically outweighs the benefit from savings in interest payments and leaves you with little to no payment relief. However, this option typically has no negative impact to your credit worthiness and should be considered a viable option nonetheless.
Whichever option you decide to go with, just make sure you do your research. And when someone mentions a debt consolidation, your follow up question should be: “what kind of debt consolidation?”.