A debt consolidation loan is an effort to combine debts from several creditors, then take out a single loan to pay them all, hopefully at a reduced interest rate and lower monthly payment. This is typically done by consumers trying to keep up with bills for multiple credit cards and other unsecured debts.
- Lowers interest rate on outstanding debt
- Make one low monthly payment
- May improve your credit score
- Higher credit score required for approval
- Paying off total debt may take longer
Debt settlement companies negotiate with creditors to reduce what you owe, mostly on unsecured debt such as credit cards. Settlement offers work only if it seems you won’t pay at all, so you stop making payments on your debts. Instead, you open a savings account and put a monthly payment there.
- Pay less than you owe
- Pay creditors over 24 to 60 months
- Avoid filing bankruptcy
- Negative impact on credit score
- Companies charge success fees