There are basically two options when you are asking, how does debt consolidation work. You have the option to use a debt consolidation loan or a credit counseling service, if you are looking for a way to consolidate your debt. The big difference in the two alternatives is one of them is a loan and the other is not.

How does debt consolidation work with a loan? A debt consolidation loan is usually secured with collateral and in most cases that is your home. While this is an alternative for getting out of debt, I do not consider it a good one. What happens is you will be paying off your debts with the equity in your home. You will ultimately be paying your debts in the form of a house payment. Your payments may be lower, because you are paying them off over a longer period of time. Your interest rate will be lower and the interest you pay will be tax deductible. The downside—if you default on the loan, the lender can foreclose on your home. Most people that take out a debt consolidation loan will have debt again with a year according to the experts.

How does debt consolidation work with a credit counseling service? Your interest rates will be lowered as well as your fees being eliminated through the actions of the credit counseling serivice. You will make one payment each month to the debt counseling service and they will disburse it to your lenders. Your credit card accounts will be closed, but your collection calls will stop and your debt will decrease. It is not necessary to enroll all of your consumer accounts. This is a credit score friendly version of debt relief. The program normally takes about 5 years to complete. Credit counseling is a good alternative as long as it used early enough.

These two alternatives are used most often to consolidate debt. Careful consideration is required before selecting a debt relief option as this is not a one size fits all situation.

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