The television and radio are full advertisements for debt consolidation companies. But the internet is also filled with horror stories about paying thousands to debt help companies and still having to file bankruptcy. The truth is not all debt consolidation works the same and you have to know the difference between the types of debt solutions before you go looking for debt relief.

Debt settlement is a debt relief option that allows you to reduce your debts through a negotiation process with the lender. If you are doing the negotiation on your own, you will have to make payment at the time of the negotiation. If you use a service, you will make payments to an escrow account and the debt settlement service will pay each lender off as the money becomes available in the escrow account.

You must understand that less than 10% of the people that enroll these programs complete it and many of them pay a lot of money into the program that they don't get back. Once this happens, most people are left with just one choice and it is to file bankruptcy. If you are one of the lucky few to survive the program, your credit will be ruined and you will be expected to pay income tax on the amount of the debt that was forgiven.

Credit counseling is your next option. These debt consolidation companies are nonprofit and they consolidate your unsecured debts without a loan. You do not need to have good credit and home ownership is not required. Your payments will be about 2% of your total debt enrolled. You will complete the program in 3-5 years and will be credit worthy at the end of it all. It is easy to get a quote for getting out of debt!