Pros and cons of debt consolidation services

Written by
Curtis Arnold
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Credit card debt following the pandemic has soared as the Federal Reserve has raised interest rates. In 2022, 82% of U.S. adults had credit cards, of which 48% carried a balance.

According to the Federal Reserve Bank of St. Louis, when borrowers fail to make on-time payments on their balances, their accounts become delinquent or past due, which results in interest charges, fees and penalties to the cardholder’s credit score.

If you’re struggling with credit card debt, the good news is that there are plenty of outside resources if you’re looking to consolidate your debt and simultaneously lower your interest rates and/or monthly payments.

What exactly is a credit card debt consolidation company?

Debt consolidation companies come in many flavors. Fees and services vary widely and can be confusing, but generally, all companies offer services that seek to combine or consolidate your debt into one monthly payment.

Unless your card rate(s) is already low (average interest rates are 20%+ according to the Feds), a desirable company should also help you lower your rates. My colleague Maryalene Laponsie, in her article “What happens if you don’t pay your credit card bill?” notes that “debt consolidation loans can reduce your interest rate and provide a predictable repayment schedule.”

Khalfani-Cox, author of the New York Times bestseller “Zero Debt: The Ultimate Guide to Financial Freedom,” gives a real-life example that helps illustrate how these loans work:

“If you have two cards with a 15% and 22% interest rate, consolidating these two cards into one loan with 12% interest will reduce your monthly interest payments (since the new combined loan rate is lower than the rate of your two existing cards). Your new loan balance will be incurring less in interest charges, so any payments you make going forward will typically help pay down your outstanding debt more quickly.”

Consolidation offers are typically unsecured, but there are few exceptions (see home equity loans below). According to, unsecured loans do not use your property or assets as collateral. Lenders consider unsecured loans to be riskier than secured loans, so they generally charge a higher rate of interest for them.


Don’t get tunnel vision when looking at options to pay down your debt. A lower monthly payment doesn’t mean that you’ll be paying less in the long run.

For example, a $5,000 loan at 10% for 15 years with a monthly payment of only $53 will cost you $2,000 more than the same amount at 18% for five years with a monthly payment of $126. So, be sure to do your math!

Debt consolidation vs. self-help approaches

Another great way to understand how a debt consolidation works is to compare it to the self-help approach of paying down your debt. There is no one-size-fits-all approach to paying down your card debt, but there are certainly guidelines that can assist you in finding the best method for you.

Gerri Detweiler, credit and small business expert and co-author of “Finance Your Own Business: Get on the Financing Fast Track,” suggests you take the following three simple steps:

  1. Make a list of all your debts, including the balances, interest rates and monthly payments. For your cards, look at your statements and find the amounts you’d need to pay each month to pay off your balances in three years or less.
  2. Ask yourself whether you realistically can make all your debt payments for three years without taking on additional debt. If the answer is “no,” or “probably not,” I’d recommend getting outside help.
  3. If you look at those numbers and you think you might be able to do it yourself, but you’re not sure, then consider getting advice from a credit counselor or a money coach.

You can also use a hybrid strategy that utilizes both approaches. I personally used a hybrid approach while paying off my $40,000+ of card debt following graduate school.

My solution was to take advantage of 0% balance transfer offers (a popular self-help approach) to pay down most of my debt. I simultaneously got a home equity bank loan (see below) to consolidate a big chunk of my debt that I was unable to balance transfer.

A good rule of thumb Michael Bovee, founder of the Consumer Recovery Network, which offers a free consultation that helps consumers figure out the best consolidation approach based on their individual circumstances, advises “is to recognize when you are overwhelmed by your debt, or running out of affordable payment options, and start reaching out to an expert.”


Detweiler agrees that a 0% balance transfer can be helpful if you’re a candidate for DIY debt consolidation, but if you’re really struggling, she cautions that “you may just be postponing the tough decisions you need to make.” She adds that it’s like “putting a Band-Aid on a big gaping wound.”

How to use personal bank loans to consolidate credit card debt

After taking the time to assess your current financial situation, weighing the options of consolidation is the next step. There are several options for consolidation at your disposal, each with its own set of pros and cons.

Personal bank loans are unsecured loans offered by a bank or other financial institution such as a credit union. These loans are often the type that is most associated with debt consolidation. You normally get approved mainly based on your credit score and income.

As is the case with most loans, rates on these loan vary based on your credit. So, it’s a good idea to know your score before applying. The convenience of a single payment after paying off your other card debts with a personal loan is compelling; however, as with any loan, be sure to do your homework. Bovee notes that “taking out a bank loan to pay off higher interest debts is something that should make mathematical sense. Simply put, the interest rate and costs of the loan need to be less than the cost of the debts you are paying off.”

Detweiler warns that “the more debt you have, the harder it is to get a low interest rate to consolidate. While everyone wants a loan with one low monthly payment, in reality those can be hard to find [if your debt is high and your score isn’t great].”


Personal finance software and apps can also help to get a handle on your debt. MoneyGrit, for example, is a DIY spending planner that provides a lot of helpful information about how to get out of debt and more effectively manage your finances.

How nonprofit credit counseling can help you consolidate your card debt

Nonprofit credit counseling companies or agencies can be very helpful if you have over $2,000 in card debt. Such programs negotiate with card companies and often can significantly lower your interest rates and consolidate your debt into one fixed payment.

If you decide to move forward with a credit counseling company, you will be enrolled in what’s called a Debt Management Plan (DMP). Enrollment may help safeguard against bankruptcy and, contrary to what some critics claim, may not substantially harm your credit score.

Bovee sees the following three major program benefits:

  1. You will get lower interest rates from participating creditors and a shorter time to be free of these debts (typically less than five years).
  2. This type of plan provides a set and predictable monthly payment that you know you can afford before you enroll.
  3. These plans are not overly harmful to your credit when you have not fallen behind with bills yet.

Detweiler adds that a reputable agency can help you “get a handle on your financial situation [and not charge you for doing so] and help you figure out if you can get out of debt usually within three-five years or less.”

Bovee cautions that there are drawbacks though, including the following:

  • These programs are not always as affordable and there is little flexibility in your repayment schedule.
  • Your accounts enrolled in the plan get closed.
  • Some creditors require all your cards be enrolled in the plan.
  • If a life event comes up that prevents you from making your regular monthly payment, you may lose the benefits of the plan.

Detweiler shares similar concerns. She claims that if you decide to enroll, “you will have to pay back the entire amount you owe, and that could prove to be a hardship for some.”

For example, she says “if your financial situation gets worse, you may have to drop out of your DMP and consider bankruptcy. For some consumers, it may be better to file for bankruptcy or try to settle their debt [instead of enrolling in a DMP].”


If you are considering the credit counseling route, be sure to do your homework and work with a reputable agency. The National Foundation for Credit Counseling can help you locate one in your area.

If you can’t find one in your area, consider a national agency like Cambridge Credit Counseling. Detweiler recommends Cambridge as they “spearheaded transparency into their results.”

How to use home equity loans to consolidate credit card debt

If you’re a homeowner, home equity loans can be a good option for helping to consolidate credit card debt. These loans are secured by your home – your home is collateral for the money you borrow.

Some details of these loans include:

  • They are for a fixed amount of money.
  • You’ll agree to make equal monthly payments over a set timeframe.
  • Good option for one-time events – like paying down high APR card debt.
  • Your interest payments may be tax deductible.

Since the loan is secured, these loans generally have lower rates than credit cards (think 8-10% range instead of 18-25%). Detweiler observes that “even though rates have risen, a home equity loan will likely have a lower interest rate than your card debt.”

Bovee agrees that “tapping your home’s equity to pay off higher rate cards can make sense”, but also notes two important caveats. “The math must make sense and you must have dependable income sources.”

Detweiler points out two other concerns:

  1. First, you may stretch out your payments over many years, which can make this debt very expensive, even with a relatively low interest rate.
  2. Secondly, if you can’t pay a home equity loan you can lose your home (which is probably not the case if you can’t pay a card).

Bovee adds that “you have far more workable debt intervention strategies available for unsecured debt than you would for a home equity loan. Taking out a loan when you have steady income is better than when your household income is unpredictable.”


You are borrowing against your home and this reality should not be taken lightly. Any misstep can put your home at risk. If you are unable to pay off existing card debt because of factors like overspending and job loss, risking a lien against your home is a gamble.

Final thoughts/tips for success

Consolidation can be a great option for digging your way out of debt, but it’s important to realize that consolidation is not a silver bullet. Consolidation is a tool, which can only be successful if you are determined to make it work.

Consolidation efforts may require a deep look into your current financial behaviors. Furthermore, this process may require that you make some major changes in order to be successful in the long term. In short, this process is not a quick fix, but rather takes planning, determination, and a little elbow grease, but it is possible!

These loans should be, in most cases, a “last ditch effort” to help repay your debts. In other words, consolidation should not be a “go-to,” or a “plan B” that resides in the back of your mind each time you swipe your card.

Detweiler offers a few suggestions for long-term success:

  • Find your group! There are some awesome Facebook groups dedicated to paying down debt and increasing income through reputable side hustles, for example.
  • Find a support group that resonates with you so you can get support when you need it.
  • Be careful about taking financial advice from someone who may not be qualified to give it.
  • If debt is overwhelming, talk to a consumer bankruptcy attorney. They can answer those scary “what if” questions that are probably keeping you up at night; questions like “what if I can’t pay, can they take my house?” Find an attorney through the National Association of Consumer Bankruptcy Attorneys.

Bovee’s tips are similar:

  • Debt is an additional stress on our lives- so don’t put off learning about what path you will take to a better financial future.
  • Recognize and reward yourself when you are able to stay on track and reach your goals. For example, celebrate when you make it 90 days with a new budget or spending habits.
  • Stop and feel some stress roll off knowing you do not need to use cards to make it through month to month and then a full year… imagine what that will feel like and then use that feeling to motivate you!

Bovee adds, “I talk to people daily, and for decades, who tried to maintain a status quo for too long before adjusting their personal finances. Many can end up with narrower options, missed opportunities, and having made costly and unnecessary mistakes. The motivation to learn and implement a plan is paramount to your success!”

Curtis Arnold
CardRatings Founder

Curtis founded in 1998 and, in so doing, helped pioneer the concept of rating credit cards. He has been a nationally recognized expert in consumer credit for well over 20 years. He is the author of “How You Can Profit from Credit Cards: Using...Read more

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