Debt Consolidation Made Simple:

What Is a DCP?

A debt consolidation program (DCP) is an arrangement you enter with a third party to amalgamate all your debt into one amount and then make reduced payments over a longer period than your current repayment terms. You should be paying less interest too.

When you find yourself unable to make more than minimum payments on your monthly credit card bills, choosing a debt consolidation program can get you back on track.


There are three kinds of debt consolidation programs:

  • Non-profit debt consolidation
  • Debt consolidation loans
  • Debt settlement

The first two options are for debtors with sufficient income to pay back all their debt but require improved terms. The third – debt settlement – is only resorted to when debt has reached unmanageable levels, and full repayment is untenable.

You may wish to talk to a financial counselor regarding which solution is right for you. They'll talk through your income and outgoing expenses and assess which option is likeliest to succeed.

What makes a Good Debt Consolidation Program?

Personal debt has skyrocketed in recent years, reaching an average of $6270 per person in the USA. So too has the number of sometimes unscrupulous firms that prey upon the indebted.

Watch out for scams and unrealistic offerings. If their offers seem too good to be true, there may be good reasons for this.

Here are some tips for finding a reliable debt consolidation program:

  • Ask how long the company has been in existence.
  • Look for consumer reviews on sites like Trustpilot.
  • Google the company name in case adverse news stories pop up.
  • Talk to anyone you know who has been through a DCP about their experiences.
  • Look closely at the fees the company requires from you.

The last question is fundamental – if you won't benefit financially from the arrangement, there's no point in entering it. Don't take on huge fees in exchange for the short-term benefit of reduced monthly payments. You don't want to be repaying that debt for the best part of a decade due to the total debt increasing by a significant percentage.

How do Credit Consolidation Companies Work?

The answer is strict budgeting – the company will assess your income and regular outgoings and develop a repayment plan you can afford, leaving you enough for food, travel, and other day-to-day expenses. You won't be left with a large surplus for entertainment, so expect to tighter the belt significantly while you're on a consolidation program.

Credit consolidation companies range from specialist divisions of international banks to small non-profit companies that operate as debt relief charities. Broadly speaking, credit consolidation companies fall within two categories:

  • Companies who provide a loan to consolidate debt, based upon credit score.
  • Companies who consolidate debt without a loan or reference to your credit score.

For the first group of companies, your credit score is key, and the general rule is - the higher, the better. A rating over 700 will provide you with an affordable rate of interest. Between 620 and 700, you'll be offered a loan, but at a much higher interest rate. Under 600, you'll probably be turned down for a loan.


The second group includes small, specialist companies who look closely at your income and expenses and make an assessment based purely on your financial position. Often, they are non-profit organizations, specifically set up to take on the additional risk of clients with poor credit scores.

Once provided with this information, these companies recommend debt-relief options, including debt management programs, Debt settlement, debt consolidation loans, or Chapter 7 bankruptcy filing.

Debt Management Programs in Detail

If this is the option chosen, counselors liaise between you and your credit card providers to reduce the interest payable on the debt and lower your monthly payments. Debt management programs aim to eradicate debt in between three to five years.

A debt settlement company or a bankruptcy lawyer will be preferable solutions if your debt counselor deems that your debt has reached a level where you cannot repay the full sum.

Beware claims made in TV commercials that seem too good to be true – e.g., "We'll reduce your debt by 50%". Although your creditors sometimes accept such offers, this is by no means guaranteed, and there's no way of predicting in advance whether you'll be that fortunate.

Going Nuclear – Bankruptcy

When all other options are off the table, filing for bankruptcy may be considered the "nuclear option." If there's any other way your debt can be reduced or paid off, you should explore that alternative first since bankruptcy can negatively impact your credit score for years.

Bankruptcy filings generally succeed – unless the court dismisses your claim, Chapter 7 bankruptcy debts are favorably discharged in over 99% of cases. The balance is reduced to zero, and you get a chance to start over with your finances.

However, Chapter 7 filing remains on your credit report for 7-10 years and may complicate any future applications for credit during that time.

How to Choose a Debt Management Program

Finding the right debt management program depends entirely on your situation.

In most cases, non-profit debt consolidation is effective, low risk, and the companies involved are inherently sympathetic and helpful. You also have the right to back out at any point and pursue alternative options. However, remember that you can only take up this option while you have credit card debt – once converted to a loan, you're left with other options only – you can't just shift to another non-profit debt management company to try the same trick again.

Debt Settlement requires complete commitment. You must create a situation where creditors are incentivized to reach a favorable agreement with you to receive back any of the money you owe them. This naturally creates a somewhat antagonistic dynamic. You may start receiving threatening letters designed to make you lose your nerve and pay up. It will be up to you to hold fast to your resolve and keep pushing on.

Although both bankruptcy and debt settlement negotiations are challenging strategies that can prove stressful to enact, if your debts have already reached the collection stage, these may be the only options left open to you.

If you're not sure which program will work for you, consider enlisting the help of a credit counselor. These are certified professionals, fully versed in the various options at your disposal. They'll go through your finances with a fine-toothed comb, answer your queries, offer advice, and help you reach a conclusion that's been fully considered.