There are many strategies you can use to get out of debt, depending on your situation. While you can always pay off debts on your own using repayment strategies like debt snowball or avalanche, if your debt is overwhelming, you may want to consider professional help.

Debt relief includes different types of strategies that can help you get out of debt, while debt consolidation can help you combine multiple unsecured debts into one for ease of repayment. In this guide, we’ll walk you through how they work, compare debt relief vs debt consolidation, and help determine which one may be right for you.

Comparison of Debt Relief and Debt Consolidation

When comparing debt relief vs debt consolidation, it’s important to get a clear understanding of how they resolve debts, key differences, how much they cost, and how they can impact your credit score.

Key DifferencesDebt ReliefDebt Consolidation
How It WorksDebt relief can help you get out of debt by reducing the amount of debt you owe, lowering interest rates, or streamlining payments.Debt consolidation helps you combine multiple debts through a personal loan or balance transfer credit card, usually at a lower interest rate.
FeesFees vary by program. Debt management- Setup fee $33, monthly fee $24. Credit counseling- $50/session. Debt settlement- 15% to 25% of debt enrolledDebt consolidation interest rates range from 6%-36%. Balance transfer fees of 3%-5%.
Credit Score ImpactThe impact varies by program. Credit counseling, for example, will be listed on your credit report, while debt settlement can have a negative.Small dip initially due to hard credit inquiry.
Tax ImplicationsYou may owe taxes on the forgiven debt.No tax implications since there’s no debt forgiveness.

What Are the Differences Between Debt Relief and Debt Consolidation?

Here are the key differences between debt relief and consolidation:

How They Work

Debt relief helps you get out of debt in multiple ways, depending on the program. 

  • Debt settlement involves negotiating with your lenders to reduce the amount you owe. Let’s say you owe $10,000 to a credit card company. Your lender may agree to settle your account for $6,000 and forgive the remaining amount.
  • If you enroll in a debt management program with a credit counseling agency, your counselor may be able to negotiate lower interest rates or waive fees and penalties. You’ll make a single payment each month, which will be distributed to your lenders.
  • With debt consolidation, you can apply for a personal loan at a lower interest rate and use the money to pay off credit card debt and other loans that have a high-interest rate. You’ll then have a single monthly payment instead of multiple.


Debt relief includes several different types of programs, each with its own fees. 

  • Credit counseling is usually the most affordable option if you only need education and guidance, with average counseling fees at $50.
  • If you enroll in a debt management plan, you’ll typically pay a setup fee of $33 and a monthly fee of $24. However, fees may vary by the counseling agency and state laws. 
  • With debt settlement, you’ll generally pay 15% to 25% of debt enrolled as fees.
  • With debt consolidation, fees can vary depending on how you combine debts. For example, if you use a 0% APR balance transfer credit card, there may be a balance transfer fee of 3% to 5%
  • If you use a personal loan to consolidate debts, interest rates can range from 6% to 35%. There may also be other costs, such as origination fees and prepayment penalties.  

Credit Score Impact

The impact of debt relief on your credit score depends on the type of program you choose and what your score was to begin with. 

  • Credit counseling will not impact your credit score.
  • Enrolling in a debt management program can lower your credit score since you’ll have to close credit cards. 
  • If you enroll in debt settlement, however, your credit score may be lowered. However, debt settlement is typically recommended when you’re already behind on payments, have multiple late fees, and maxed out credit cards. Your credit score would already be lower at that point.
  • Debt consolidation can also temporarily lower your credit score. There will be a hard credit inquiry when you apply for a new loan or balance transfer card. However, the impact is usually less severe, and it will typically rebound once you start making on-time payments.

Tax Implications

In some cases, debt relief may reduce the total amount you owe. This results in forgiven debt, which the IRS considers taxable income.

With debt consolidation, you’ll have to repay the total amount you owe. Since there’s no forgiven debt, you won’t have to pay additional taxes.

What Is Debt Relief?

Debt relief is an umbrella term that refers to strategies that resolve your debts. It can include strategies like debt settlement, debt consolidation, credit counseling, and debt management programs.

Any strategy that helps you resolve your debts by streamlining your repayment plan, reducing your interest rate, or settling your debts can be called debt relief.

Advantages of Debt Relief

  • It may help lower your interest rates
  • This may allow you to pay off your debts sooner
  • You may be able to save a considerable amount of money
  • It may allow you to settle your debts for less than you owe
  • It may allow you to avoid bankruptcy in a few cases
  • You may be able to avoid a court judgment if you resolve your debts

Disadvantages of Debt Relief

  • Some debt relief options may take up to five years to complete
  • It can lower your credit score
  • You may still receive debt collector calls
  • Lenders may not accept your settlement offer
  • You may not qualify for all programs since some require a good credit score
  • You may have to pay taxes on any forgiven debt

What Is Debt Consolidation?

Debt consolidation combines multiple debts into a single loan. You can use the loan funds to repay your prior debts, resulting in a single payment each month. This can relieve the stress of juggling multiple payments each month.

Consolidation loans may also lower your interest rate and monthly payments, so you may be able to save a considerable amount of money. You can get debt consolidation loans from online lenders, credit unions, and banks.

Another option is to use a balance transfer credit card to combine multiple credit card balances. You may qualify for 0% APR for a limited time, so if you manage to pay off the entire balance during that time, you can avoid paying interest charges.

Advantages of Debt Consolidation

  • It makes repayment easier and simpler
  • You may be able to get a lower interest rate
  • Your monthly payment may be lower than what you’re currently paying
  • On-time payments can improve your credit score over time

Disadvantages of Debt Consolidation

  • It may take three to six years, or even longer, to repay the debt
  • If you choose a longer repayment period, you may pay more in interest over the life of the loan
  • It may be difficult to qualify for a loan if you have bad credit

Choose the Right Option To Manage Debt

Whether debt relief or debt consolidation is right for you will depend on your specific situation. Start by thinking about your personal goals, income, and how much debt you have to determine the right option.  

Debt expert and founder of Greenbacks Consulting, Teresa Dodson, offers this advice: “To know the right thing to do, you must understand your particular financial situation. Do you have good enough credit for a consolidation loan or do you really need more help like debt relief?” she asks.

Understanding the main differences between each option is an important step to determine how these solutions can impact your future. We also recommend speaking to a professional if you’re not sure about which option to choose. We’ve listed the key points below to help you determine which option is suitable for what type of circumstances.

Debt ReliefDebt Consolidation
When you’re unable to keep up with debt payments.When you have multiple debts and want to simplify repayment.
When you have bad credit.When you have high-interest debts.
When you have a significant amount of unsecured debt.When you have a good credit score, so you can qualify for competitive interest rates.

Alternatives To Consider

There are several types of debt resolution programs to choose from. If you’re committed, you may be able to become debt-free in three to five years. We’ve listed some of the top options below.

Debt Management

With debt management, you can make a single payment towards all your debts. You can enroll in a program with a nonprofit credit counseling agency, and your credit counselor may be able to get some fees waived and lower your interest rate.

Since you won’t have to apply for a new credit card or loan, you can qualify even with a lower credit score, which is a major benefit for those with poor credit.

Debt Settlement

If you have over $10,000 in unsecured debts, maxed out credit cards, and are unable to pay the full amount, a debt settlement company can negotiate with your creditors or debt collectors to settle your total debts for less than you owe.

Debt settlement may allow you to save up to 50% before fees. You’ll typically stop making payments to your lenders and instead contribute to a savings account. Once you’ve saved enough, you can make a lump sum payment to your lenders to settle the account.


If you have so much debt that none of the other options are viable, bankruptcy may be a

last resort option. Chapter 7 and Chapter 13 are the two most common options for individuals.

Chapter 7 bankruptcy can eliminate most of your unsecured debts, but your assets may be liquidated. However, it won’t resolve secured debts like mortgages and auto loans. We recommend speaking to a bankruptcy attorney to determine the cheapest way to file for bankruptcy.

What To Look for in a Debt Relief or Debt Consolidation Company

Once you compare debt relief vs debt consolidation and choose the option that fits with your goals, the next step is to look for the right company to work with. Here’s what to look for in a debt relief company or one that specializes in consolidation:

  • Look for companies that have the right accreditation and certifications.
  • If working with a credit counseling agency, opt for ones with nonprofit status.
  • Pick companies that offer a free initial session.
  • Check the company's ratings and reviews on independent review sites and Better Business Bureau (BBB).
  • Work with a company that’s transparent about its fees and services.