If you like the idea of consolidating your debts, you have two options that can serve as your debt relief method. They have differences and similarities and it is important for you to know them so that you can make a smart decision as to how you will solve your debt problems.

Let us discuss them one by one.

Debt consolidation loans is a type of debt relief that uses a big loan amount to pay off everything else that you owe. If you have three card debts worth $2,500 (debt A), $5,000 (debt B) and $10,000 (debt C), you will need at least a $17,500 loan to pay them off. If the $17,500 is approved, you will use it to completely settle debt A-C. That will consolidate your debt amount into the new loan that you just made. With the debt being stretched over 5 years, you can expect a lower monthly payment.

Ideally, you should compute the average interest rate of your other debts. Whatever you have computed will be your ceiling in terms of the interest rate on your new debt. Do not get a loan that will ask you to pay a higher interest than your current average. Usually, the low interest can be achieved by having either one of these: a good credit score or a collateral. Both of these will show that you are a low risk borrower and thus will prompt the lender to give you a low interest rate.

The other type of debt consolidation is known as debt management. Unlike the previous option, this requires the aid of a debt or credit counselor. When you enroll your debts with a credit counseling agency, you will be assigned one and they will look at your finances to see how you can make your debt payments. The counseling part is free. But if you want to take the service further to debt management, you will be asked to pay a fee that is no more than $50 a month. If you have fewer debts, you will pay less in terms of the service fee.

You will begin by creating a debt management plan (DMP) that will serve as your guide throughout the program. This will be custom made to suit your financial capabilities. The counselor will stretch your payments over a longer payment period so you can make lower monthly contributions towards your debts. They will negotiate with your creditor to approve this payment plan and they will guide you until its completion - or at least until you decide to pull out from the program, which is not really advised. Once the creditor accepts the DMP, you will make single payment contributions to the counselor who will distribute the funds to the respective creditors. They will also try to negotiate with the creditor to lower your interest rate - but this usually happens once you are already updated on your payments.

Both of these options, debt consolidation loans and debt management, will require you to have a steady income. Despite a lower monthly payment, there will be no debt reduction on your current balance. The longer terms will see to it that you will be required lower dues.

When choosing between the two, look at the requirement list and see which among the two you can meet. For instance if you have a bad credit score and if you do not have a collateral or you do not want to put it on the line, then debt management is your best option.

Another consideration is the methods. In debt management, all the accounts enrolled in the program cannot be used - this will not happen in debt consolidation loans.

One of the primary reasons why credit card debt is so hard to get out of is because of the high interest rates that is added to it every month. If you can only get rid of this rate, do you think you can pay off your debts quickly?

If that is all that you need to get ahead of your credit problems, then there is a way for you to get rid of your credit card’s interest rate. It is another type of debt consolidation that makes use of balance transfer cards.

The idea is to literally transfer the credit card balance to another account. You can shift your balance to an existing account that has the lowest interest rate but if your goal is zero interest, you can avail of a new account that offers this as an introductory promo.

With all the negative publicity about how credit cards can easily put anyone in debt, banks and credit card companies came up with a promotion that will attract discouraged consumers. They offer these zero interest cards so debtors have the option to transfer their high interest credit card balance into this new account. Of course, there is a fee involved that is usually a percentage of the amount that you will transfer. Nevertheless, the elimination of the interest rate is a great way for anyone to eat up a huge portion of their debt.

The companies behind these balance transfer cards are strictly mandated by the government to lengthen the zero interest promo period. The minimum is 6 months. After that, these cards will go on to their intended high interest rate charges.

Before you proceed with this debt relief option, you need to come up with a payment plan that will take advantage of the time when you will be free from the high interest rates of your credit card. If you have a huge amount coming in, you should put all of that in your debt payments. The goal is to pay off your debts during the promo period - or at least have the smallest balance left. Despite the presence of the high interest after the promo, you need to pay that off immediately to keep your debts from growing bigger again.

When you are choosing a card to use in your balance transfer, you need to read through the fine prints to make sure that you understand the charges involved. More importantly, you need to ensure that you know the time limit of the zero interest privilege.

As you are paying off your debts, you need to be very careful about the rest of your cards. You have to maintain a strict spending diet. If you have to, lock up your credit cards - which incidentally are now free from balances. That can be very tempting to use and thus grow your debts once more. Keep them hidden as long as you like - at least until after you are convinced that you can control your credit card spending.

When you realize that your credit card debt has grown into a huge amount, your initial reaction will be shock, disbelief and then denial. Most people get over these three reactions immediately and start to take action for their credit responsibility. However, there is also the percentage of debtors who refuse to accept their debt and choose to ignore the debt that they currently owe.

While not thinking about your debt will keep the stress away, you will never be at peace. It may allow you to continue living the life that you got used to but that will only be temporary. Your credit card debt is the type that can quickly spiral out of control. To convince you that ignoring your card debt is a bad idea, here is a rundown of what will happen the longer you run away from this credit obligation.

Whenever you miss one payment, your creditor will immediately take notice of this. It will be considered a missed payment if you send less than the minimum payment requirement or send nothing at all. Even if you are late for only a day, you will immediately be given a $25-$35 worth of late fees. The exact amount will depend on your credit card company. This fee will be added on top of your balance. On top of that, your current balance will be used to calculate for the interest amount that will be added to your minimum monthly payment. This is done by getting your balance and multiplying it based on the current APR (Annual Percentage Rate). The product will be the interest rate that will be placed on your monthly minimum payment. As you ignore your balance, it will grow and thus making the interest amount grow as well.

Usually, it takes the creditor 30 days before they report that you have not been making your payments. If two billing statements passed without any payments from you, then you can expect that your credit report already reflects this behavior and your score will decrease because of that. This decrease can be more than 100 points - depending on your current score and the time that lapsed since your last payment. Some creditors wait until after 90 days before reporting that you have been defaulting on your payments.

When you have been late for 30-60 days, you can also expect that the people who will call you will be coming from the collections department already. The good news is, this is still within the company so the callers will still treat you as a client and will not be disrespectful. They will still try to salvage their relationship with you in hopes that you will still do business with them in the future. However, this also means that the creditor already marked you as a bad account. At this point, ignoring the debt will be very hard to do.

After 180 days of not paying your credit card debt, you can expect that your account is already charged off. This means the creditor gave up on getting any profit from you and will apply for a tax exemption to cover their loss. But this does not mean your debt is forgiven. In fact, it signals that the calls will get uglier because collection will be turned over to a third party company who wouldn’t care for you as a client.

A charged off debt also brings a negative mark on your credit score so you can expect that it will go even lower.

Bottom line is, ignoring your debt will not make it go away. The sooner you act on your debt problem, the easier it will be. There are many debt relief options that you can choose from. In fact, if your concern is your credit score, debt consolidation is the option that has the least effect on your report. Know your options and start getting yourself out of debt now.