Debt Relief or Consolidation: Choosing the Best Path

Debt relief, or debt settlement, is when you negotiate with your creditors to settle your debt for less than you owe.

While you can navigate debt relief on your own, it’s more common to work with a non-profit credit counseling agency or a for-profit debt settlement company to negotiate lower payments or a reduced total debt amount on your behalf.

The most common debt relief solutions are debt settlement and debt forgiveness.

Example: You owe $20,000 in credit card debt. Through a debt relief program, your creditor agrees to accept $14,000 as payment.

Debt consolidation, on the other hand, combines multiple debts into one new loan product. You can do this with a debt consolidation loan, a balance transfer credit card, or a home equity loan or line of credit (HELOC).

In many cases, it lowers your interest rate and simplifies the payoff process.

Example: You owe $20,000 across five different credit cards with interest rates ranging from 18% to 24%. You take out a debt consolidation loan with an APR of 14% and use it to pay off all balances with a single monthly payment.

Debt relief is usually best for those who are overwhelmed with debt and can’t afford to repay it. “If your finances have reached the point of no return, debt relief might make sense,” says A.B. Ridgeway, financial advisor and owner at A.B. Ridgeway Wealth Management. Ridgeway recommends debt relief if the interest payments you owe far exceed your original principal payments.

Consider debt relief if:

• You have severe debt that you cannot realistically repay in full.
• You’re behind on payments and creditors are already calling or threatening collections.
• Your credit has dropped due to high debt levels or missed/late payments.
• You don’t qualify for a consolidation loan due to poor credit or unstable income.
• You need significant debt reduction, not just simplified repayment.

Debt consolidation is a better fit if you have strong credit and several high-interest debts. “If you have the money, but the interest rates are very high and/or you want to streamline the payoff process, you may want to consider a debt consolidation,” explains Ridgeway. Consolidating debt can make your life easier and give you a structured repayment plan with a clear end date.

Consider debt consolidation if:

• You have a good or excellent credit score that qualifies you for a low interest rate.
• You’re current on payments but struggling with multiple high-interest balances.
• You want to protect your credit score while making repayment easier.
• You value predictability, with one fixed monthly payment instead of several.
• You want to save money on interest while still paying off your balances in full.

Both debt relief and debt consolidation come with their own pros and cons. Here’s a closer look at what they are.

Debt relief

Pros

• Streamlined repayment: Some debt relief programs allow you to make a single monthly deposit into a dedicated account.
• Can reduce overall debt burden: Depending on the debt relief program you pursue, you may lower the total amount of outstanding debt you owe.
• Halts collections: Once you commit to debt relief, you can stop calls and letters from aggressive creditors.
• May prevent bankruptcy: Debt relief may be a smart alternative to bankruptcy, which can take a serious toll on your credit and long-term financial health.

Cons

• Negative credit score impact: Since you may have to stop paying your debts so that they can be negotiated, debt relief can take a serious toll on your credit.
• Creditors may not agree to settle: There’s no guarantee that debt relief will be successful, as creditors are not legally obligated to settle.
• Potential fees: Most debt relief programs impose fees, which may require you to pay a credit counseling agency or for-profit company a percentage of the total debt amount you originally asked them to settle.
• Tax consequences: You might have to pay taxes on forgiven debt if it equates to $600 or more.

Debt consolidation

Pros

• Single monthly payment: You’ll have one monthly bill to track rather than multiple payments with different due dates.
• Potential interest savings: Consolidating often lowers interest rates and total repayment costs.
• Lower monthly payments: You may reduce your monthly payments and free up your cash flow for other priorities.
• Can improve your credit: If you make on-time monthly payments consistently, debt consolidation may improve your credit score.

Cons

• Can be hard to qualify: Most debt consolidation loans are unsecured personal loans, which usually require good to excellent credit for the best rates.
• Doesn’t reduce the total principal owed: You’ll still need to repay your debt in full, just with a more predictable schedule.
• Doesn’t prevent overspending: There’s a risk of running up new credit card balances if spending habits don’t change.

Before you move forward with debt relief or debt consolidation, costs and credit impact should be top of mind. This table can help you compare them both.

At the end of the day, the ideal debt management strategy depends on your particular finances, goals, and personal preferences. If you’re looking for a clean slate because you can’t pay back your debt, debt relief might be worth it.

Just be aware that you may have to accept unforeseen consequences. “When a creditor "relieves" you from a debt, it can negatively impact your credit score. It can also increase the interest rates you pay for future loans,” explains Ridgeway.

However, if you’re not behind on payments and your credit score may qualify you for a lower rate, debt consolidation is likely the safer, smarter move. Not only will you be able to streamline the debt payoff process, but you also save on interest and protect your credit.

“If you’re unsure, don’t hesitate to consult a financial advisor about your unique situation. It all comes down to the numbers. It has to make sense on paper, before it will ever make sense in real life,” explains Ridgeway.

Specifically designed for successful professionals and business owners, BHG debt consolidation loans let you consolidate multiple debts into one manageable monthly payment, freeing up cash flow and providing greater peace of mind. Here’s why our loans stand out:

• High loan amounts (up to $250,000¹): Consolidate significant balances with loan sizes far above industry averages.
• Unsecured structure: No collateral required—your home and assets remain protected.
• Fixed rates and terms up to 10 years^1,2: Predictable monthly payments make budgeting simple.
• Fast funding: Many borrowers receive funds in as little as five days.³

Here’s an example of potential savings with a BHG Financial debt consolidation loan.

 
* Advertised rates are subject to change without notice.
* Potential savings based off comparing repayment of a $40,000 balance over 7 years on both a credit card with a minimum monthly payment of $987 and APR of 23.99% (average consumer credit card APR per Investopedia as of 10/16/25), with the assumption no additional draws on the line are made during this time; and a BHG Personal Loan with a minimum monthly payment of $716 and minimum available APR for a 7-year term, which is 12.44% as of 10/16/2025 and includes an origination fee.

Ready to regain control and work towards the financial stability you deserve? Use our quick and easy payment estimator to get your personalized loan offer in just seconds.  There’s no impact on your credit score to check your rate.⁴