Debt Consolidation Terms

Before I start my blog on Debt Consolidation, let me explain some basic terms that you will need to know. 

Bankruptcy: a type of aggressive consumer debt resolution where you attempt to either liquidate your debts through a chapter 7 bankruptcy, or re-organize your debts into a payment plan through a chapter 13 bankruptcy. 

Collection Agency: a company hired by a creditor to collect a debt that it is owed. If you are seeking bankruptcy advice, it is wise to seek advice from a local bankruptcy attorney.

Credit Counseling: a third party managed payoff strategy where your interest rates are lowered to the bank's concession rate and thereby your monthly payments decline. Typically, a credit counseling program runs around five years to getting debt free, but each consumer's experience depends on their own creditors and the size of their payments.

Credit Score: a measure of credit worthiness. Typically, it is a guage of a consumer's likelihood to default on a future credit line. FICO is the industry standard measure of a credit score, which is primarily based on payment history, debt utlization, and the amount of debt owed.

Debt Consolidation: taking multiple debt or credit lines and consolidating them into one new payoff plan. Frequently, this is a consolidation loan, provided to consolidate debts into one loan with one payment, typically shifting credit card debts to secured debt by refinancing a mortgage. It could also refer to a credit counseling or debt settlement program.

Debt Management: a service provided by an agency that provides debt help services, including credit counseling, debt settlment, and debt consolidation loans. Most people refer to a Debt Management Plan as a plan administered by a credit counseling firm.

Debt Settlement: a program for negotiating and settling consumer debt to a discount to face value. Frequently, resulting in lower payments, lower debts, and a short period to debt freedom while avoiding bankruptcy.