The Big Difference
Debt Consolidation typically means taking out a new loan to pay off multiple smaller debts. You still owe the full amount, but you (ideally) get a lower interest rate and a single monthly payment.
Debt Settlement involves negotiating with creditors to pay less than what you owe. This is usually done through a program where you stop paying creditors directly and instead save into a dedicated account.
| Feature | Debt Consolidation Loan | Debt Settlement Program |
|---|---|---|
| Credit Score Impact | Minimal (Initial dip for inquiry) | Negative (Missed payments) |
| Total Debt | Same (Principal doesn't change) | Reduced (Forgiven amount) |
| Cost | Interest + Origination Fees | Settlement Fees (15-25% of debt) |
| Timeline | 2-5 Years | 2-4 Years |
Which is right for you?
Choose Consolidation if:
- You have a good credit score (660+).
- You want to simplify bills.
- You can afford your current total payments but want to save on interest.
Choose Settlement if:
- You are already behind on payments.
- You cannot afford the minimums.
- You are considering bankruptcy as an alternative.