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woman researching debt consolidation vs. debt settlement

Debt consolidation and debt settlement offer very distinct options for managing debt.

With debt consolidation you pay off debt from several different creditors with a single loan. Debt consolidation is often considered a smart tactic for taking control of debt so that you can improve your credit health.

Debt settlement involves negotiating an agreement on your debt with one or more creditors. This is a tactic often used by people struggling to make payments due to unexpected financial adversity and seeking to avoid bankruptcy.

If you’re looking to control your debt, rather than have your debt control you, it’s good to understand how debt consolidation and debt settlement differ, which option might save you time or money, and what the benefits and challenges are for each. We’ve laid out the basics, and our friendly loan specialists are here to help with any additional questions you might have.

Debt consolidation

Consolidating your higher interest debt has many benefits including simplifying your debt picture, potentially saving you money on interest, and reducing the time it takes to pay down your debt.

Simplifying your debt: Maybe you owe money to multiple creditors and you’re finding it difficult to manage or budget for different amounts of debt, each with their own interest rate, minimum payments, and payment due dates. If any of that debt has variable rates or revolves, your monthly payments can fluctuate, making your financial picture more complex.

Debt consolidation can simplify your finances. By consolidating several debts into one loan, you’ll have a single due date for set regular monthly payments. You can build this payment into your budget and circle the day on the calendar when your debt will be paid off. In fact, 87% of surveyed debt consolidation customers told us their Discover® personal loan was simpler than their other financial options.*

Saving money and time:  While you’ll need to pay off the full amount you’ve borrowed, a loan for debt consolidation could help you save money on interest. Because loans for debt consolidation may offer you a lower APR than your higher-interest debt, you could save hundreds, even thousands, of dollars on interest. Our debt consolidation calculator can estimate your potential savings.

A personal loan could help you pay down debt faster.  89% of surveyed customers who took out a Discover personal loan to pay off existing debt, told us they paid it off sooner with the majority of them reporting they paid it off an average of 2 years earlier.* With your debt paid down, you’ll be able to focus on your longer-term financial goals.

Debt settlement

Debt settlement can be used to settle one substantial debt or to deal with several creditors. You can try to do it yourself, but some people benefit from working with a debt settlement consultant. The first thing you’ll want to do is look for an accredited debt counselor who can walk you through the process and help you find a solution that works for you.

There are several challenges to debt settlement that you need to think about:

  • First, your creditor is under no obligation to settle the debt for less than what you owe and may simply refuse.
  • While you’re negotiating or paying on a settlement, your bills will continue to come, and your debt can grow as interest accumulates.
  • Finally, settlement can have a negative impact on your credit record, both from any missed payments and from the settlement process itself. This will stay on your credit reports for up to seven years and can make it difficult for you to borrow money should you need to.

If you decide to pursue debt settlement, you may be able to negotiate a payment for less than what was originally owed. This might decrease the amount you need to pay; your creditor gets paid more quickly, but you may have to pay in one lump sum. This could be substantially more than either your original monthly payment or your monthly payment after debt consolidation. There may also be tax implications that add costs.

While debt settlement is an option if you’re really struggling with debt and worrying about bankruptcy, there are enough negative implications to make it worth working with a professional financial adviser to really understand all the details.

Debt consolidation vs. debt settlement: which is best for you?

As with all financial decisions, your specific circumstances will ultimately determine the answer. Be sure to remember these key things as you make your decision about whether to pursue debt consolidation or debt settlement:

  • While you may pay less total with debt settlement, you’ll still need to pay the negotiated remaining debt over time or in a lump sum. Make sure you look at whether doing so will cause more financial hardship.
  • Debt settlement may be best achieved through a representative of a reputable debt consolidation company, which could mean additional fees or costs.
  • Debt settlement could have long-term negative impact on your ability to borrow money in the future, according to Debt.org.
  • With debt consolidation, you pay one creditor instead of several, but you still pay off the original amount you owed. You can do it over time in set regular payments you can budget for.
  • Debt consolidation does not lower the total amount of principal you owe, but it could save you money in interest if you consolidate several higher interest revolving loans into one fixed rate, fixed term personal loan.

In the end, whether you choose debt consolidation or debt settlement will depend on your personal financial situation.

With a debt consolidation loan, you can simplify most of your higher-interest monthly bills into one payment, potentially saving money on interest. A Discover personal loan can be customized to a regular monthly payment that suits your budget, too. Our 100% U.S.-based loan specialists can walk you through our available repayment terms, so you can select the one that meets your financial goals.

Read more about debt consolidation services from Discover.


All figures are from an online customer survey conducted August 19 to September 6, 2022. A total of 665 Discover personal loan debt consolidation customers were interviewed about their most recent Discover personal loan. All results @ a 95% confidence level. Respondents opened their personal loan between January and June 2022 for the purpose of consolidating debt. Agree includes respondents who ‘Somewhat Agree’ and ‘Strongly Agree’.