Debt Consolidation
How Does LendingTree Get Paid?
LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

Credit Counseling vs. Debt Consolidation: Which Is for You?

Updated on:
Content was accurate at the time of publication.

If you’re struggling with debt, you may consider credit counseling or debt consolidation. Credit counseling involves working with a financial professional to manage your debts and budget, while debt consolidation is opening new credit to pay off multiple existing debts. Consider the differences between credit counseling and debt consolidation to determine which route is best for you.

On this page

Credit counseling

What is credit counseling?


Credit counseling is the process of working with a certified credit counselor to help you overcome financial challenges. A counselor can advise or educate you about your money, credit and debt; create a budget for you; talk to creditors on your behalf; or help you explore bankruptcy.

Credit counseling may be best known for their debt management plans. Under a debt management plan, counselors can help you consolidate unsecured debts (debts without collateral, like student loans) into manageable monthly bills that you can pay off within three to five years.


  Won’t directly impact your credit score in a negative way

  May have to pay a setup and monthly fees for services

  Debt management plans don’t have tax implications

  Debt management plan can take anywhere from three to five years to complete

  Counselors can help you budget or communicate with your creditors on your behalf

  Can’t use credit cards during debt management plan process

How does credit counseling work?


When you choose a credit counseling agency to work with, you’ll schedule an initial credit counseling session, which is often free. This session may take place in person, over the phone or online.

Before meeting with your credit counselor, gather recent pay stubs, bills, and credit card and bank statements. It’s also helpful to list out all of your monthly expenses, especially variable spending like utility bills, food and gas.

During your meeting, your counselor will review your finances and speak with you to better understand your needs and challenges. If you choose to enroll in services, your counselor may:

  • Walk you through the process of setting up a personal budget to pay off debt, often via a customizable worksheet.
  • Suggest a debt management plan to help you lower or stop interest, consolidate select monthly bills and repay enrolled unsecured debts within three to five years.
  • Offer student loan counseling to help you identify your available options (repayment plans, forgiveness, etc.).
  • Provide you with educational materials or access to workshops on various financial topics, such as bankruptcy, money management and using credit responsibly.

Where can you find a credit counselor?


The majority of reputable credit counseling companies are nonprofit. Organizations may charge a setup fee plus a monthly fee depending on your debt and location if you enroll in services. Always ask about fee structures upfront, as they can vary among organizations.

These credit counseling organizations can help you locate a trustworthy credit counselor in your area:

Is credit counseling bad?


Working with a credit counselor isn’t bad, but it’s not right for everyone.

Debt management plans won’t work for most secured debts and services may cost up to $75 per month or more. Other services, such as for bankruptcy counseling, can come with their own fees.

Credit counseling doesn’t directly impact your credit. But a debt management plan may affect your credit in other ways. For example, a credit counselor may require you to close credit cards enrolled in the plan, which can impact your credit utilization ratio.

Debt consolidation

What is debt consolidation?


Debt consolidation involves rolling old debts into a single, new account. Banks, credit unions and online lenders typically offer debt consolidation through debt consolidation loans or balance transfer credit cards.

Debt consolidation can help lower your overall repayment costs, decrease your monthly payments and reduce the number of bills you juggle.


  May be able to get a lower interest rate than your current ones if you have good credit

  May have to pay additional fees such as origination fees or balance transfer fees

  Only have to track a single due date and payment rather than multiple

  Hard credit pull for new credit account can cause your score to go down

  As you pay down on your debt, your credit utilization ratio will go down and your credit score may increase

  If you’re unable to repay your debt, your credit score may suffer and your debt could be sent to collections

What does the debt consolidation process look like?


  • Compare lenders. Ideally, you should prequalify for a loan with several lenders or credit card companies so you can compare your options. Consider factors such as APRs, repayment terms, borrowing limits and fee structures.
  • Verify your information. Once you choose a lender you’ll need to verify your information by submitting documents such as pay stubs and a government-issued ID. You’ll also submit to a hard credit check, which will ding your credit.
  • Close on your loan. If you qualify, your lender may pay off your existing debts directly or you may need to apply your loan proceeds toward your original accounts. With a credit card, you’ll complete a balance transfer, which can come with a 3% to 5% balance transfer fee.

Tip: Review your credit scores and reports before you fill out any official financing applications to avoid surprises like credit reporting errors, and to get an idea of the current condition of your credit.

loading image

Is debt consolidation bad?


Debt consolidation isn’t bad, but it may only be a good fit for some people. If you have a good credit score, for instance, you may get low interest rate offers.

On the other hand, poorly managed debt consolidation can backfire. For example, if you’re unable to repay your newly consolidated loan or credit card, your account may be forwarded to collections debt and your credit may suffer. However, this is still possible with your old debts before debt consolidation as well.

Credit counseling vs. debt consolidation: Which is right for you?

Your specific financial situation determines whether credit counseling or debt consolidation is a good fit. If you fall under these categories, you may want to consider one of these options:

Credit counseling could be best for you if …

  • You prefer to work with a professional instead of working toward financial goals alone.
  • It’s difficult to afford your monthly debt payments and financial obligations.
  • You’re overwhelmed trying to juggle multiple accounts and monthly payments.
  • You want to understand your finances better, but don’t know where to start.

Debt consolidation could be best for you if …

  • You can afford your monthly payments, but you’re paying high fees on your current debt.
  • You want to reduce the number of bills you pay each month.
  • You have good credit and/or are comfortable with secured debt and can qualify for new financing with more favorable repayment terms.
  • Improving your credit score is important to you.

A third option: debt settlement

Debt settlement is an alternative to credit counseling and debt consolidation that involves negotiating your debts with creditors so you can pay less than what you owe. This can involve paying your creditors a single lump sum payment. Debt settlement may be best for you if your debts are long past due, you have money saved up and you want to avoid bankruptcy.

Typically, creditors aren’t willing to settle your debts unless they are in default. Your creditors may also not be willing to communicate with any debt settlement company you hire, so you may be better off negotiating yourself.


  May be able to pay less than what you owe your creditors

  Stays on your credit report for up to seven years

  You may be able to avoid bankruptcy or legal action from your creditors

  Creditors may not be willing to negotiate with you

  You can negotiate with your creditors yourself for free

  Hiring a debt settlement company can be costly

Credit counseling may be a good fit if you are overwhelmed by debt and aren’t sure how to manage it yourself. This route may also be worth considering if you want to enroll in a debt management plan or want bankruptcy counseling.

Credit counseling likely won’t directly impact your credit score. However, as you begin to pay off your debts, your credit utilization ratio will go down and your credit score may increase over time.

Yes — typically, credit counselors charge a setup fee as well as monthly fee. Monthly fees can range anywhere from $7 to $75 while setup fees can be as high as $100.