Is There a Difference Between Debt Consolidation and a Debt Consolidator?

Holy cow, you’d be surprised at how different these two are! Consolidating debt and using a debt consolidator might sound similar, but they refer to different approaches to manage multiple debts:

Debt Consolidation:

This is the process of combining multiple debts into a single loan or credit account. You obtain a new loan or credit line, ideally with better terms, such as a lower interest rate (here at Prosperity we want you to get 7% or lower) or a longer repayment period, to pay off your existing debts. By consolidating, you streamline payments, making it easier to manage your debt by having only one monthly payment to focus on.

Using a Debt Consolidator:

A debt consolidator, often a financial institution or service provider, assists in the process of consolidating debts. They may offer debt consolidation loans or services where they negotiate with your creditors on your behalf to create a repayment plan. Debt consolidators might also provide counseling or advice on managing debts and improving financial habits. They may recommend strategies that are considered drastic, like not paying your minimums so they can negotiate with whoever you owe money to. Strategies like this are reserved for folks who are looking for final options before declaring bankruptcy and here at Prosperity we do everything in our power to help you avoid heading down that path. You should be very careful when working with a debt consolidator as some of the methods they employ can have a big impact on your credit score.

Key Differences:

Debt Consolidation: It refers to the act of combining multiple debts into one, often through a new loan or credit account.

Debt Consolidator: This refers to a service or entity that helps facilitate the debt consolidation process. They might provide loans, negotiate with creditors, or offer guidance on managing debts.

In essence, consolidating debt involves merging multiple debts into a single payment by obtaining a new loan or credit account. On the other hand, using a debt consolidator involves seeking assistance from a specialized service or institution to navigate the consolidation process, which may include obtaining the consolidation loan or negotiating terms with creditors on your behalf. Still confused? Contact Prosperity today and we can dive deeper into this together.