Are Debt Consolidation Companies Worth It?

Debt consolidation companies often sell debt settlement programs, which can have a negative impact on your wallet and credit score.
Debt Consolidation Companies May Be Settlement in Disguise

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When you’re struggling to make payments on your debt, it’s tempting to seek a quick and easy solution. In the process, you’ll likely run across companies promoting debt consolidation. But many “debt consolidation companies” actually sell a more controversial product: debt settlement.

For most consumers, is a risky option. It should be considered only after you’ve exhausted alternatives. It’s costly, it can severely damage your credit and any savings can take years to realize.

A key difference between debt consolidation and debt settlement is who's in charge.

Understanding the difference between the two approaches ensures you don’t end up losing money on a service or outcome you aren’t expecting.

Debt consolidation is a do-it-yourself strategy that you control. Enrolling in a debt settlement program puts you in the hands of debt relief companies that may or may not successfully settle your debt.


Businesses that bill themselves as debt consolidation companies, like and , in fact sell debt settlement programs that require you to stop paying your bills and instead make monthly payments into a separate savings account.

Once there’s enough money in that account, typically after six months, the debt settlement company will begin negotiations with your creditors. If they reach an agreement, you’ll pay the creditor the negotiated payment out of that account and pay the debt settlement company a fee for its service.

Debt settlement companies promote savings of 20% to 35% after their fees.

Here’s the short answer: Turn to debt settlement companies only as a last resort. Enrolling in a settlement program can cost you in multiple ways:


Do-it-yourself debt settlement: Settlement companies tout their expertise at negotiating with creditors, but — if you’re convinced debt settlement is your best option — you can try to . It requires confidence in your ability to work with creditors and enough cash on hand to settle, but you can save significant time and money.

Do-it-yourself debt consolidation: Getting a handle on debt by consolidating several debts into one at a lower interest rate can also save money — as well as your credit. There are multiple ways to approach this process, including:


If you need expert guidance, consider reaching out to a nonprofit . These organizations can help you determine the best way to get a handle on your debt. They can also help set up a , which is a safer alternative to services offered by debt settlement companies.

And if, after considering all the alternatives, you choose to hire a debt settlement company, follow these basic guidelines:

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