A lot of people find themselves in debt beyond their means. There are a few paths available to consumers to reduce these debt loads—some better than others. Many have probably heard of debt consolidation as a potential option, but might not fully understand what it means. Here’s an explanation of debt consolidation, and how it works in the real world.

What Is Debt Consolidation?

People have all kinds of debt. Not all of these types of debt are the same. While they’re all obligations that you need to pay back in order to maintain your creditworthiness, certain types of debt are far less destructive for your finances. Some kinds—such as a mortgage—can actually make you money in the long run. But other forms of debt can create huge problems for people. Many don’t realize that medical debt is actually the top reason for causing people to file for bankruptcy. In fact, it accounts for over 60 percent of personal bankruptcies.

Debt consolidation is a smart alternative to people who might otherwise need to file for bankruptcy, which can ruin your credit for years. Essentially, consolidating your debt brings previously separate payments into one sum. Creditors typically want to find a solution to your debt problems as much as you do.

After all, they want to get their money back. Some people consolidate their credit card debt through balance transfers, which involves moving debts onto a different plan with a lower annual percentage rate (APR). This can be risky, however, if you don’t think that you’ll be able to truly pay down the debt within the introductory low-interest rate period. Many people will need to explore other options.

Where Should You Go To Consolidate Debt?

Some people can successfully navigate the debt consolidation process on their own. But this can be an extremely confusing ordeal and requires precise planning and execution in order for it to work. One such plan is to balance transfer cards.

Balance transfer is the process of transferring your debt balance to another lender, thus allowing you to save on interest fees. Plus, it’s a reasonable method for keeping tabs of your balance and payments. The goal here is to reduce outgoing high-interest payments and pay off your debt more quickly.

However, if you have too much debt and the above methods don’t work for you, companies like Freedom Debt Relief could help debtors by negotiating with creditors to reduce the total amount owed. This “forgiven debt” makes it easier for folks to pay back what is owed. Then again, debtors will have to declare this “forgiven debt” as income on their taxes. Still, it’s a smart move for those who need it.

Who Can Qualify For Debt Consolidation?

Pretty much all people can use debt consolidation to their advantage. There are, of course, some people who will benefit from using this form of debt management more than others. People who have a steady income, but just have too much debt at the moment, are the people who should definitely consider the benefits of debt consolidation. You don’t want to file for bankruptcy if it’s something you can potentially avoid with debt consolidation.

Despite the fair number of people who go through with bankruptcy—about 770,000 individuals each year—it should only be used as a final resort. Bankruptcy does a lot more than erase your debts. It stays on your credit for years, which will make it harder for you to borrow money. It can even affect your job prospects, as a lot of employers look at a skinny version of credit reports before hiring someone.

What Are The Benefits Of Debt Consolidation?

As already mentioned, staying out of bankruptcy is one of the biggest pros of using some form of debt consolidation plan. But this isn’t the only way consumers can benefit from this financial restructuring. People who do debt consolidation the right way will be able to pay down what they owe with a lot fewer interest payments. High interest in certain forms of debt—such as credit cards—is one of the top reasons why people end up with more debt than they can handle on their own.

People don’t realize that making minimum payments can quickly turn a small amount of debt into a large sum. By using debt consolidation to lower payments, people can give themselves a little more financial breathing room each month while also paying down their debts in a timely manner. Conversely, if the debtor pays more each month, he or she can save on interest payments in the long run. The strategy really depends on the needs and goals of the debtor.

There are a lot of reasons why people end up in debt. Many of these aren’t even due to particularly poor financial planning. No matter how you ended up with debt, you don’t want it to take over your life. Debt consolidation can be a solution for people who owe too much for them to manage without extra measures.