No nonsense idiot's guide to debt consolidation

Debt Consolidation

All it means is, consolidate multiple debts into one.

It can be done in one of the 5 following ways:


Interest rate arbitration


Also known as loan consolidation

Debt Management


Only interest is reduced

Debt Settlement


Interest and principal are reduced

Chapter 13 Bankruptcy


Interest and principal are reduced under court supervision

Chapter 7 Bankruptcy


Interest and principal are reduced under court supervision

What are the advantages and disadvantages of debt consolidation?

This depends on:

  1. Which option of debt consolidation you choose
  2. How good the option that you choose fits your unique situation

Bottom line is figure out how much you can pay each month and how important is credit score to you.

Let us give some examples:

  1. Sally can pay $400 each month towards her debt and she does not want to buy a home in near future. If $400 over 36 months comes up to 50% of her total debt, then she should go for debt settlement. If not, then she should file bankruptcy.
  2. Sally has 2 credit cards at 15% and 20% interest rates. If she can combine 2 cards into one loan at 12% interest rate and spend $1640 per month over 5 years, she should go for loan consolidation or debt management.