While this might incentivize your creditors to accept a lower payoff amount, it can also severely damage your credit. In most cases, the company will encourage you to stop making your monthly payments on your debt as they try to negotiate with your creditors. You can also hire a debt settlement company to negotiate with your creditors for you.

This generally involves offering a lump-sum payment to clear the debts.

If you pursue debt settlement, you’ll approach your creditors and try to persuade them to accept a reduced payoff amount. Note that debt settlement is generally only an option for unsecured debt without collateral, like credit cards or personal loans. You can do this yourself or work with a third-party, for-profit company to handle it for you. You’ll need to address these issues in order to avoid ending up in the same place in the future.ĭebt settlement is the process of negotiating with your creditors to accept a payoff amount that’s less than what you owe.

Doesn’t fix bad financial habits: Consolidation might help you manage your debt, but it won’t solve the problems that might have led to an overwhelming amount of debt in the first place.

While some lenders offer debt consolidation loans for bad credit, these typically come with higher rates than good credit loans - which might defeat the point of consolidating your debt in some cases. A good credit score is usually considered to be 670 or higher.

Usually need good credit: You’ll typically need good to excellent credit to qualify for a debt consolidation loan.

For example, personal loans can come with origination fees while balance transfer cards generally have balance transfer fees.

Can come with fees: Many lenders charge fees on debt consolidation loans.

If you can’t afford the monthly payments, consolidation might not be the right solution for you.

Doesn’t reduce your debt: While consolidation can help to simplify your repayment, it won’t reduce the amount of debt you owe - though you might save money on interest if you lower your rate.

So while applying for a new loan could cause a slight, temporary drop in your credit score, making on-time payments on the loan might help to improve your score in the long run. Could help to improve your credit: Payment history makes up 35% of your FICO credit score.Consolidating your debt means you’ll have just one payment to manage. Can simplify repayment: It can be hard to keep track of multiple debts with different rates and payments.Just keep in mind that choosing a longer term means you’ll pay more in interest over time. This will likely reduce your monthly payments to fit more comfortably into your budget. Might reduce your payments: You can opt to extend your repayment term when you consolidate debt.This can save you money on interest and potentially help you pay off your debt faster. Could get you a lower rate: If you have good credit, you might qualify for a lower interest rate on a debt consolidation loan than what you’re currently paying.For example, if you use a personal loan to consolidate credit card debt, you’ll make fixed monthly payments - typically for one to seven years, depending on the lender. This new loan will come with a different rate and repayment term. This means your original creditors will be paid off in full, and you’ll make just one monthly payment toward your consolidation loan. To consolidate debt, you’ll take out a new loan - like a personal loan or balance transfer credit card - and use the funds to pay off your debt. Consolidating your debt might also get you a lower interest rate than you’re currently paying, depending on the type of consolidation loan and your credit. Pay only if your debt is successfully reduced What is debt consolidation?ĭebt consolidation is when you use a new loan to pay off your debts, leaving you with just one loan and payment to manage.

Freedom plus debt consolidation