Debt Consolidation Programs Versus Loans

Consumers are easily confused about how debt consolidation works because the industry uses interchangeable terms.

Both approaches work very differently and have unique pros and cons. Explore each alternative to decide which is best for your needs before taking the plunge.


A debt settlement program means that you consolidate your payments to multiple creditors in an effort to negotiate relief. If successful, the creditors agree to forgive a portion of what you owe in exchange for immediate partial payment.

In order to qualify for a settlement program, you must owe more than $10,000 in unsecured debt (credit cards, medical debt, personal loans) and have enough income to fund an escrow account with 1/3 of the amount owed.

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Consolidation Loans

A debt consolidation loan means that one new lender pays off what you owe to multiple old creditors. You then repay the new lender under different terms (interest rate & the number of payments).

In order to qualify for a consolidation loan, you must have a good credit score and enough income to handle the combined monthly payment to the new lender (after meeting your other living expenses such as housing and transportation).

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Articles on this Topic

Debt Forgiveness For Seniors: Stop Paying Credit Card Bills

Debt consolidation loans and programs are rarely a fit for elderly parents dealing with significant credit card obligations. You need a sizable income to qualify for either option.

However, many older adults are judgment proof because collection agencies cannot garnish Social Security retirement benefits, or money held in 401K accounts.

Credit Card Debt Forgiveness for Disabled Individuals

Debt consolidation is not viable for disabled individuals struggling to pay past credit card debt. The combination of reduced income combined with extra medical expenses makes it almost impossible to qualify.

Collection agencies cannot garnish Social Security Disability benefits. However, they could place a lien against personal property. Learn how to game the process

Do Unpaid Medical Bills Affect Buying a House?

A negative medical debt credit history can follow you around like a bad penny. It may even affect you when trying to buy a house.

Mortgage lenders will consider your debt to income ratio, your credit score, and other factors when evaluating your application. The amount you owe doctors, dentists and hospitals do not help your cause.

Free Government Debt Consolidation Programs & Loans?

The government does not offer or approve debt consolidation loans, relief options, or forgiveness programs for private obligations in a direct fashion. However – federal and state agencies enact laws that regulate related activities.

People who owe large sums on their credit card, mortgage, or hospital bills will benefit from knowing the consumer protection rights that they have.

How To Answer Credit Card Application Questions Correctly

When responding to a credit card offer, you may need to answer several seemingly odd application questions such as whether you rent an apartment, own a home, or live with your parents.

You may find it interesting to learn the different ways risk managers may use your answers when deciding whether to approve your request, and then set your initial limit.

Unsecured Personal Loans with High Debt to Income Ratio

Applying for a personal loan online may be the first place to look if you are someone with a high debt to income ratio. Consolidating your accounts into one can dramatically reduce your monthly payments if only you can find a lender willing to approve your request.

In addition to working with a broad network of willing lenders, you can improve your chances by reducing your payments, or increasing your income.

Negotiate Medical Debt in Collections | Settle for Less

Negotiating a lower settlement on your unpaid medical and hospital bills in collections will save you far more money than taking out a consolidation loan. Try this avenue first.

Combining your obligations into one payment and stretching out the terms does not reduce your obligations. Origination fees and interest charges only serve to make it grow.

Using Installment Loans to Pay Off Payday Cash Advances

Many consumers consider applying for an unsecured personal loan online to consolidate deferred deposit transactions. Doing so may lower projected annual interest rates, and temporarily relieve payment pressures from these expensive short-term contracts.

Be careful! You are trading one problem for another.