Debt consolidation is one of those topics that comes up often. We hear about it on the radio, in ads, or from friends who may have looked into it. But do we really understand when it’s a good option—and when it can actually do more harm than good?

As someone who works with clients navigating these situations every day, I want to break this down for you. The next time you—or someone you know—is considering debt consolidation, you’ll be equipped with the facts to make the right choice.

What Is Debt Consolidation (Debt Relief)?

At its core, debt consolidation means combining multiple debts into one monthly payment. It sounds simple, but there are two very different ways this can be done:

  • Debt Relief / True Debt Consolidation: Specialized companies take over your debt and negotiate to settle for less than what you owe.
  • Personal Loan Consolidation: You take out a loan on your own (or use a refinance, credit card balance transfer, or a home equity line of credit) to pay off your debts. You still make your payments yourself, but now it’s one loan instead of many.

The second option can often be a positive tool for improving cash flow and staying on top of your finances. The first option—the one most often advertised as “debt relief” – comes with significant risks that most people aren’t told about up front.

How Does Debt Consolidation Work?

When you sign up with a debt relief company, you’re often told to stop paying your creditors while the company “takes over.” The accounts are allowed to go delinquent until they’re eventually “charged off.” At that point, the company negotiates to settle for less than what’s owed.

Here’s what really happens along the way:

  • Missed payments turn into late fees, charge-offs, and collections on your credit report.
  • These negative marks can stay on your credit for up to seven years, making it harder to qualify for things like a mortgage.
  • Many people also end up receiving a 1099-C form (cancellation of debt), which adds to taxable income at the end of the year.

In the end, these programs don’t usually save people as much as they promise – and the long-term damage to credit can be significant.

The Pros

In some cases, debt relief can provide short-term benefits:

  • It may lower a monthly payment and provide temporary breathing room.
  • It can help settle old, charged-off debts for less than what’s owed.
  • For someone with very large collections, having a professional handle negotiations may be helpful.

But even then, it’s important to weigh those benefits against the lasting consequences.

The Cons

Here’s what you need to keep in mind:

  • True debt consolidation (debt relief) can severely damage your credit.
  • These companies use terms like “approved” or “relief” to make the program sound like a solution, but they often downplay the risks.
  • Negotiations with creditors are something most people can do on their own without paying high fees.
  • Instead of moving you closer to financial goals – like buying a home – these programs can actually push you further away.

If something sounds too good to be true, it usually is.

What To Do Instead

Debt can feel overwhelming, but it doesn’t mean you have to give up on your goals – especially the dream of homeownership. That’s where I can help.

Here’s what I do with clients:

  • Create a personalized plan to lower debt the right way.
  • Provide clear, step-by-step tips on how to improve credit.
  • Explore other options for managing debt and improving cash flow, such as refinancing or using a home equity line of credit for current homeowners.
  • Keep the bigger picture in focus: preparing for and achieving homeownership.

Instead of risking long-term damage with debt relief programs, we’ll put together a plan that moves you forward.

Final Thought

Debt consolidation companies often make big promises, but the hidden risks can leave people worse off. Before making a decision, let’s talk. I’ll review your situation, outline real solutions, and help ensure your next step is one that builds your financial future – not one that sets it back.

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