--- title: 'Debt Consolidation vs. Debt Relief: Which Is Right for You?' description: Debt consolidation is usually a better choice if your finances are stable, while debt relief can make sense if your situation is more dire. authors: - name: Jess Ullrich url: https://money.com/author/jess-ullrich/ at_money_since: 2025 articles: 4 covers: - Personal Finance former_staff: true editors: - name: Kaitlin Mulhere role: Editor url: https://money.com/author/kaitlin-mulhere/ bio: Kaitlin Mulhere has been covering the intersection of college and personal finance since 2015. She enjoys breaking down the complexities of college costs and financial aid, and she also runs Money’s Best Colleges. education: University of Florida at_money_since: 2015 articles: 217 covers: - Personal Finance - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Retirement - Shopping - Taxes social: - https://twitter.com/KMulhere - https://www.linkedin.com/in/kaitlin-mulhere-64503048/ published: '2025-04-04T16:35:58.000Z' modified: '2025-04-28T13:26:08.000Z' section: Personal Finance word_count: 1132 canonical: https://money.com/debt-consolidation-vs-debt-relief/ type: Article source: structured-blocks --- > **Disclosure:** We may earn a fee if you click on the links below. Compensation does not determine ranking. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Worried woman looking at a clipboard, with a lot of receipts in the background](https://img.money.com/2025/03/Debt-Consolidation-Versus-Relief.jpg) Presented by ![](https://s3.consumersadvocate.org/prd/image/image/25734/cd57ee75-23cb-485d-8acd-956e92cd6cfe.png) Freedom Debt Relief could help you resolve $15,000 or more in debt with 1 low monthly program payment. No loan required. [Go To FreedomDebtRelief.com](https://money.com/pr/c39e103d02f5?ap_referrer=%2Fdebt-consolidation-vs-debt-relief%2F) The total credit card debt in the U.S. climbed to over $1.2 trillion at the end of last year, up 4.0% from just a year prior, according to the Federal Reserve. Credit cards have some of the highest interest rates of all financing types, and growing high-interest [debt](https://money.com/debt/) can make it increasingly difficult to pay down your balances. If you’re among the Americans struggling to [manage your credit card debt](https://money.com/ways-to-pay-off-credit-cards/), there are a few ways you can take control and pay off your balances. Two of these strategies include debt consolidation and debt relief. Here’s how they work and when they may be a good fit. ## Debt consolidation can simplify payments and save on interest Debt consolidation involves applying for a low-interest loan or credit line and using it to repay more expensive debts. You can do this with a [debt consolidation loan](https://money.com/use-personal-loan-to-pay-off-debt/) (which is essentially a personal loan for paying off debt), a balance transfer credit card, or a [home equity loan or line of credit](https://money.com/use-home-equity-to-pay-off-debt/) (HELOC). Regardless of the type of product, consolidation will result in one easier-to-manage monthly payment and could save you big on long-term interest charges. Here’s an example: Let’s say you have a $9,000 total balance across two credit cards, both with a 24% interest rate. If you’re only making minimum payments on your cards, that 24% rate could add thousands to your balance over time, which makes it much harder to climb out of debt. For example, if you paid $270 monthly, which could be more than the minimum, it would take you four years and eight months to be debt-free. You’d also pay almost $6,000 in interest. But if you get approved for a [personal loan](https://money.com/use-personal-loan-to-pay-off-debt/) with a 12% interest rate and a 5-year term, you could pay less per month and still cut your total interest paid in half. If debt consolidation seems like the best approach, start comparing loan options, terms and rates. Then, apply online for your [debt consolidation loan](https://money.com/best-debt-consolidation-loans/), providing the requested personal and financial information and documentation. If approved, your lender might pay your existing creditors directly or disburse the funds directly to you, depending on their loan structure and process. ### When is debt consolidation a good idea? Debt consolidation could be a wise move in these situations: - **You have high-interest debt**. If you have high-rate credit card or loan debt and can qualify for a lower-rate loan to repay those balances, it could save you money. - **You have good credit**. Good or excellent credit could increase your chances of getting approved and help you snag a lower rate. The better your credit in this case, the lower your loan rate is likely to be. - **You want to combine payments**. Tracking several monthly payments can be tricky. Debt consolidation lets you combine those payments into a single, easy-to-manage payment. - **You can afford the new monthly payment**. If you’ve only been making minimum monthly payments on your credit cards each month, you’ll want to ensure you can afford a new monthly payment on the personal loan, home equity loan or balance transfer card before applying. ## Debt relief requires negotiating with your creditors With [debt relief](https://money.com/what-is-debt-relief/), or debt settlement, you work with your creditors or a third-party company to settle your debt for less than what you owe. It’s usually a more drastic measure than debt consolidation, reserved for people who have significant [unsecured debt](https://money.com/secured-debt-vs-unsecured-debt/) that’s become unmanageable. “In general, debt resolution tends to be the right solution for somebody who is in the midst of an acute financial crisis,” says Steve Boms, president of Allon Advocacy and the legislative director for the American Association for Debt Resolution (AADR). If you decide to pursue debt relief on your own, you can [negotiate with your creditors](https://money.com/how-to-negotiate-credit-card-debt/) to see if they’d be willing to accept lower payments. But because this process is often intimidating and time consuming, many choose to work with debt relief companies instead. Regardless of which path you pursue, you’ll likely need to stop making payments (if you haven’t already fallen behind) so that your creditors have an incentive to negotiate. Working with a third-party service can be easier, but these services still cannot guarantee they’ll be able settle your debt for less than you owe. According to a [study](https://aa4dr.org/wp-content/uploads/Dobbie_Report-1.26.2021-1.pdf) commissioned by the AADR, its member companies successfully negotiate settlements around 55% of the time. If a company is successful in its negotiation, you’ll also pay a percentage of your enrolled debt, often 15% to 25%. Any amount of forgiven debt will be taxed as ordinary income. ### When is debt relief a good idea? “Debt resolution could work for somebody who’s been juggling multiple unsecured loans for some time with varying degrees of success, but has been victim to one or more hardships,” Boms says. It could also be a good choice in these situations: - **Your credit has already taken a hit.** You typically have to stop making your monthly payments as part of the debt settlement process, and delinquency may [hurt your credit](https://money.com/will-debt-relief-hurt-credit-score/). For that reason, debt relief is generally a better choice if you’re already struggling with poor credit due to high debt levels or missed/late payments. - **You have significant debt.** Most debt settlement companies require that you have a minimum of at least $7,500 in unsecured debt to qualify for their services. (Note that many clients have significantly higher debt levels.) - **You’re behind on payments due to financial hardship**. If your payments are simply too much and you’re headed toward more dire financial consequences, debt relief may be a good choice. This is especially true for people dealing with a financial stressor, like a loss of income, illness or divorce. ## Debt consolidation vs. debt relief: Which is better? Generally, [debt consolidation](https://money.com/pros-cons-debt-consolidation/) is a better choice if your financial situation is stable, while debt relief can make sense if your situation is more dire. Here’s when each may be the better choice, though you’ll have to carefully look at your individual situation to determine the best approach for you. ### When debt consolidation might be better Consider debt consolidation if: - Your credit is still decent. - You aren’t behind on your payments. - You can qualify for a new loan. - You can afford a new loan payment. - You want to reduce your interest rate. - You want a single monthly payment. ### When debt relief might be better Consider debt relief if: - You are already behind on your payments. - You have significant unsecured debt. - You want to avoid bankruptcy. - You feel getting out of debt is a bigger priority than protecting your credit. - You understand the tax ramifications. ## Struggling with debt? Get debt relief ### Reduce debt stress with Freedom Debt Relief. Pay less each month, reduce what you owe, and resolve debt faster than with minimum payments. No loan required, no max debt amount. Click below to explore eligibility with a free debt evaluation. 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