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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