Get Out of Debt With a Debt Consolidation Program
- The best debt consolidation programs help you get out of debt by trading multiple debt payments for one.
- Debt consolidation can save you money if you’re able to get a lower interest rate or pay less than what you owe.
- Choose debt management plans and debt consolidation loans if you can. Debt settlement is risky and will hurt your credit, so only settle if you’re out of options.
Debt consolidation program options
There’s no universally accepted definition for “debt consolidation program.” Instead, debt consolidation programs typically refer to debt management plans, debt consolidation loans and debt settlement.
Here’s what you need to know about your debt consolidation options.
Debt management plan
How it works: You’ll make your debt payments to a credit counselor, who will send the money to your lenders and may be able to negotiate lower rates on your behalf.
Cost: Startup fee and monthly fee (typically less than $70 a month, depending on the state)
Best for hands-on help managing your debt that won’t hurt your credit.
Avoid if you plan to continue using your credit cards, since credit counselors usually require that you stop using credit until you’ve paid off your debt.
Learn more about debt management plans.
Debt consolidation loan
How it works: You’ll use your consolidation loan to pay off your current debts. If your new loan has lower rates, you can save money and potentially pay off your debt faster.
Cost: One-time origination fee (typically 1%-10%, but can be higher)
Best for people with good to excellent credit who can qualify for low interest rates.
Avoid if you can’t qualify for lower interest rates than the ones you’re currently paying.
Learn more about the best debt consolidation loans.
Debt settlement
How it works: You’ll start making your payments to a dedicated account rather than your creditors. Your debt settlement company will use this money to negotiate your debts and may be able to clear your debts for less than they’re worth.
Cost: 15%-25% of the debt you settle
Best for people who owe more than $7,500, whose credit is already bad and who don’t want to file for bankruptcy.
Avoid if you can. Debt settlement may not work, and you’ll owe money to the debt settlement company regardless of whether or not they can settle for you.
Learn more about debt settlement and debt relief programs.
How to choose a debt consolidation program
Choose your debt consolidation program based on what’s important to you. Consider the following factors:
Risk
Least risky: Debt management plan, debt consolidation loan
Riskiest: Debt settlement
As long as you follow the guidelines of your debt management plan or make your debt consolidation loan payments on time, either method can help you get out of debt.
Debt settlement is risky. Your creditors may not budge on the amount you owe, leaving your settlement company unable to negotiate your debts.
In that case, you’ll still owe the debt, but you’ll likely have racked up late fees and damaged your credit score in the meantime. Debt collectors can even sue you for nonpayment.
Step-by-step guidance
Most guidance: Debt management plan
If you want someone to guide you through the process of paying off your debt, consider working with a credit counselor on a debt management plan. Your credit counselor can help you create a budget and learn more about managing your money. This can help if you (like many others) are feeling overwhelmed by debt.
Damage to your credit score
Less damage: Debt consolidation loan, debt management plan
Significant damage: Debt settlement
Using a debt management plan won’t hurt your credit, and any damage to your credit when you take out a debt consolidation loan should be temporary and minor. In fact, both of these methods can improve your score over time as long as you make on-time payments.
But debt settlement can hurt your credit and stay on your credit report for up to seven years.
Time in debt
Most flexible: Debt consolidation loan
Here’s the average time in debt for each debt consolidation option:
- Debt management plans: 3-5 years
- Debt consolidation loans: 2-7 years
- Debt settlement: 3-4 years
In general, debt consolidation loans give you the most flexibility. If you want to pay down your loan as fast as possible, you can do so in as little as two years. But if you need lower monthly payments, you can stretch out your payments across seven years.
Debt consolidation companies
Once you’ve chosen your debt consolidation program, you’ll need to find a debt consolidation company or lender to take the next step toward paying off your debt.
Here’s how to find legitimate debt consolidation companies for each type of debt consolidation program.
Credit-counseling companies
To find a legitimate credit counselor who can work with you on a debt management plan, search the database of approved credit counselors maintained by the U.S. Department of Justice.
Debt consolidation lenders and companies
Here are a few reputable debt consolidation lenders and companies to get you started:
| Lender | APR range | Loan amounts | |
|---|---|---|---|
 | 7.49% – 24.14% (with autopay) | $5,000 – $100,000 | |
 | 8.99% – 29.99% (with discounts) | $5,000 – $100,000 | |
 | 7.99% – 35.99% (with discounts) | $1,000 – $50,000 | |
 | 6.70% – 35.99% | $1,000 – $50,000 |
You can also read lender reviews from real LendingTree users.
Debt settlement companies
Start by searching for debt settlement companies on your favorite search engine (like Google). Once you find a few you like, make sure they’re accredited by the American Association for Debt Resolution or the International Association of Professional Debt Arbitrators.
Before you sign with any company, do a thorough internet search of your debt settlement company’s name plus the word “review” or “complaint.” You can also check the Consumer Financial Protection Bureau’s complaint database.
Red flags for debt consolidation scams
Pressure
Don’t work with any company that pressures you to pay an upfront fee or sign up for a program before they have thoroughly reviewed your finances and explained in detail how they can help you.
Too good to be true
If a debt consolidation program sounds too good to be true, it probably is. Watch out for buzzwords like “new government program” and “guarantee.”
You should also know that debt consolidation programs can’t stop debt collectors from calling or suing you if you stop making payments.
Unclear fees or terms
Don’t sign anything without understanding how the program works and what it costs. Sketchy debt consolidation programs often aren’t clear about their terms, so walk away if you’re having trouble getting the information you need.
Frequently asked questions
Debt consolidation programs can be a good idea if you can’t afford your monthly loan or credit card payments but don’t want to declare bankruptcy. If you’re already missing payments, you should consider debt consolidation programs and other debt relief options.
Yes, debt consolidation can hurt your credit, but the damage will be minor and temporary as long as you make on-time payments. In fact, your credit score can go up more than 80 points when you pay off your credit card debt with a personal loan, according to a recent LendingTree study.
Each type of debt consolidation program has different eligibility requirements, and these requirements can even vary by company. Here are some general guidelines:
- Debt consolidation loans typically require good credit to get a better APR than what you’re currently paying, but it’s possible to find a debt consolidation loan for bad credit.
- Debt management plans and debt settlement companies don’t usually have credit score requirements, but your balance will likely need to be $7,500 or higher for debt settlement.
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