Best debt consolidation companies 2019: a single loan to cover multiple debts

Best debt consolidation company

Debt consolidation loan lenders provide a single loan to cover multiple debts you owe. Debts can include everything from high-interest credit cards to medical bills or student and car loans. A single loan can help you better manage your money, reduce interest and assist you out of debt. 
Debt consolidations loans may not be right for everyone and there are potential risks to putting all your debts in one place. 
If you have a good credit history then you should be able to get a low annual percentage rate (APR) that can reduce your monthly interest. You can expect anything from 6% APR to around 18% APR depending on your circumstances, debt amount and income.

Editor's Choice: National Debt Relief

When your debts are piling up and you are unsure of how to meet monthly payments, one option is a debt consolidation loan or service. National Debt Relief has low rates, especially if you have good credit.VIEW DEAL ON National Debt Relief

If you have a bad credit score then the APR will be likely much higher, and you may not  even qualify for a debt consolidation loan. If that is the case you can look to improve your score using a credit repair service or read our guide to the Best Debt Settlement companies. Using a debt settlement company means you have someone that negotiates your debts for you, often reducing them significantly. This does come with a fee attached, but can still save you thousands on your overall debt. 
Some of the companies we’ve highlighted in our list offer debt consolidation loans and settlement, others just settlement. 
Be aware that while your monthly payments and interest may be reduced with a debt consolidation loan, it could also mean you end up paying more overall. This is especially the case if you choose a loan with a lengthy repayment term. 
For example if you consolidate a $10,000 loan at 20% APR over three years and a $5000 loan at 30% APR over two years you will be paying $1,362 a month for two years and $706 a month in the final year. That will be a total repayment of $41,187 over three years. 
If you consolidate those loans with a 18% APR over six years then you will be paying $619.23 a month, but your total repayment will be $44,585. So you’re paying $3398 more overall, but the reduced monthly payment may be what can really help you right now.
To find the best debt consolidation services, we researched 12 of the most popular debt consolidation and settlement companies. We narrowed down the list by comparing the companies’ fees, customer service and transparency and spent dozens of hours speaking to representatives. If you have at least $7,500 in credit card or other unsecured debt, you may want to look at a debt consolidation company. You can expect to pay between $1,400 and $2,500 in fees on $10,000 of debt, though you only pay fees on debt that is successfully settled. If you opt for a debt consolidation loan then you won’t need to pay fees.

Best overall

National Debt Relief

National Debt Relief got high marks in all these we assessed

Reasons to Buy
Operates in 41 states
Relatively low fees
Reasons to Avoid
Consolidation loans available only if you have a high credit score
No personalized customer service

To find the best debt consolidation company, we considered each service’s fees and program length, the resources it provides, and its eligibility requirements. We also called each company to see how forthcoming it is with information about its programs. National Debt Relief got high marks in all these areas.

Debt consolidation programs, also known as debt settlement plans, have standardized costs and eligibility requirements. National Debt Relief’s costs and requirements fit right in with the industry, with fees of 18 to 25 percent of enrolled debt and a minimum debt of $7,500. Its average debt reduction is around 30 percent after you pay your fees.

National Debt Relief also works with you to find the right program for your debt situation. It may recommend a debt consolidation loan through its lending branch, Liberty Lending. To qualify, you need a FICO score of 700 or above.

We found this to be one of the easiest companies to speak to, with excellent customer service reps who answered our questions with more than marketing. They told us about the ways the program can impact credit scores and other drawbacks, including the need to close all credit cards. National Debt Relief also has a mobile app where you can track your progress.

Best customer service

Freedom Debt Relief

Freedom Debt Relief has the best customer service of the debt consolidation firms we reviewed

Reasons to Buy
Highly regarded customer service
Excellent customer dashboard
Reasons to Avoid
Programs can last up to 60 months
Doesn’t assign a dedicated account representative

During our research, we found that customer service is one of the most important considerations when choosing a debt consolidation company. Due to strict regulations, fees and timeframes don’t vary by much. However, the resources a settlement company provides its clients can go a long way toward successfully completing the program. Freedom Debt Relief has the best customer service of the debt consolidation firms we reviewed.

Its customer service reps undergo an intensive, months-long training program before taking calls. Those we spoke to were helpful and provided clear explanations of how the program works and the risks involved.

Freedom Debt Relief may recommend other options depending on the specific amount of debt you have. In some cases, it may direct you to Freedomplus, which offers debt consolidation loans to clients with good credit. It may also recommend a debt management plan through a credit counseling agency. In some cases, bankruptcy may be recommended.

You’ll also find Freedom Debt Relief’s client dashboard helpful in managing your program. The dashboard includes useful tools to help you track each settlement’s progress as well as how much you’ve saved toward those settlements. You get updates on the dashboard and can contact customer service through it for a quicker response.

Best for personalized service

New Era Debt Relief

New Era had the lowest fees we found, charging only 14 to 20 percent of the amount of debt you enroll in its program

Reasons to Buy
Low fees
Dedicated account representative
Reasons to Avoid
No consolidation loans
Programs can have long terms

Laws limit how much debt consolidation companies can charge in fees, but depending on where you live, they can be as much as 25 percent of the debt you enroll. New Era had the lowest fees we found, charging only 14 to 20 percent of the amount of debt you enroll in its program. There’s also no monthly fee.

New Era also stands out by not having a minimum debt requirement for enrollment. Most of the companies we reviewed require you have at least $7,500 to start their debt settlement programs. Having no minimums makes this company a good choice if you have a smaller debt load. New Era’s programs last between 36 and 48 months.

When you call for an initial consultation, New Era determines if a settlement program is best for you or if you’d be better served starting a debt management program or taking out a debt consolidation loan. If the situation warrants, you could be referred to a bankruptcy attorney.

New Era assigns you a customer service rep and a dedicated negotiator. You get regular status updates on the progress of your negotiations. The company’s customer portal also helps you keep tabs on your settlements and shows how much you’ve saved toward them.

Best tools

Pacific Debt

Pacific Debt has great tools to help you manage and monitor the status of your debt consolidation

Reasons to Buy
Mobile app tracks the status of your program
Reasons to Avoid
Customer service somewhat slow to respond

Pacific Debt has great tools to help you manage and monitor the status of your debt consolidation. For example, you can use its mobile app to see your settlement’s progress as well as how close you are to completing your program.

Pacific Debt only operates in 32 states. Also, it is based in California, so if you live on the East Coast, you have to factor in the time difference when working with it.

In our experience, Pacific Debt is somewhat slower to reply to inquiries than other companies. The service charges between 15 and 20 percent on settled debt, and it takes between 24 and 48 months to complete its program – both its fees and program length are about average for the industry.

Shortest programs

Premier Debt Help

Premier has programs as short as 12 months, which makes it a good option if you want your debt settled fast

Reasons to Buy
Programs as short as 12 months
Reasons to Avoid
No consolidation loans

Generally, a debt consolidation program takes 24 to 60 months, depending on your debt load. However, Premier has programs as short as 12 months, which makes it a good option if you want your debt settled fast. 

One note of caution though – not all programs can be completed in 12 months, and your program’s actual length depends on the specifics of your debt.

 Premier’s fees and debt reduction are comparable to those of other consolidation companies we reviewed, with fees equaling 20 percent of your settled debt. One of Premier’s drawbacks is it doesn’t offer debt consolidation loans – its only debt relief service is its debt settlement program.

Debt management: what are your options?

When you start pursuing debt management options, you may get mixed messages from people in the debt relief industry. Because there is no general industry consensus as to what the best ways to manage debt are, we have narrowed down your options. Many of these options work hand in hand with or as part of a larger debt reduction program, but in general, these are your choices:

Debt settlement

Settlement is the process of negotiating with your creditors in hopes of reducing the total amount of debt you owe them. While you can undertake this process on your own, many people choose to hire a professional debt settlement company or lawyer to negotiate on their behalf.

When you begin this process, you set aside funds each month into a separate, insured account. While you're building up your funds, the company or lawyer you've selected negotiates with your creditors to try to reduce the total amount of debt you owe. When a settlement is reached, the funds you have been setting aside go toward paying your creditors and negotiation fees. These programs take around two to four years to complete and negatively influence your credit.

Debt consolidation

Consolidation is the process of combining all your debts into a single, lower payment by taking out a loan to pay off your creditors. Companies usually attempt to lower your debt through debt settlement before recommending you take out a loan. The goal of consolidation is to have a lower payment at a lower interest rate than you currently have. It can be confusing because debt consolidation is also used to refer to debt settlement programs as well.

Debt management program

These programs often work hand in hand with credit counseling. During this program, you receive financial counseling and meet with a financial advisor. Additionally, the debt management company contacts your creditors and attempts to negotiate lower interest rates on your behalf. Lower interest rates allow you to more quickly pay off your debts. These debt relief programs don’t have a negative impact on your credit but may limit your credit options for their durations.


This should be a last resort as it negatively affects your credit for many years. With bankruptcy, you officially declare that you cannot pay your debts. To pursue bankruptcy, you must qualify and complete the entire process, including pre-filing and post-filing counseling.

Debt consolidation loans: what are the risks?

While a debt consolidation is less risky than other options, like bankruptcy, it still carries a considerable amount of risk. When you take out a consolidation loan, you are required to put forth collateral. Most often, the required collateral is a second mortgage or a home equity line of credit. This is incredibly risky because if you cannot meet your payments, your home is on the line. Furthermore, if you have bad credit, debt consolidation loans may come with high interest rates.

In addition to putting your home at risk, many consumers end up prolonging their debt. While having one low rate and one payment is an attractive option, many people end up in similar or worse financial situations when attempting credit card debt consolidation. According to Cambridge Credit Corp., a nonprofit credit-counseling agency, 70 percent of Americans who take out consolidation loans end up with the same or more debt after two years.

Types of debt that can be helped by a debt consolidation service

Types of debt vary, and this influences what you can consolidate. The first thing to determine is if your debt is secured or unsecured. Secured debt is attached to collateral. For example, car loans and mortgages are secured debts. Unsecured debts are loans or lines of credit without collateral attached to them and include credit cards and medical bills.

Certain unsecured debts, like student loans or payday loans, may not be eligible for consolidation. Before you enroll with a company, explore your options with a financial consultant so you know exactly which debts you can and cannot consolidate.

Debt consolidation loans for people with bad credit

Many companies advertise low interest rates for direct loan consolidation, but these rates are typically reserved for those with exceptional credit ratings. If you've had trouble with your finances in the past, you most likely will not qualify for these rates; consolidation loans for bad credit, often come with high interest rates attached. However, if you've met with a financial advisor and have the discipline to stick with a longer payment period, then debt consolidation might be worth the sacrifices.

Best debt consolidation companies: what to look for

When choosing a company to consolidate your debt, it is important to find one that’s reliable and compliant with FTC regulations. Don’t work with a company that doesn’t disclose all the legally required information before encouraging you to enroll.

Accreditations are another key indicator of whether a company adheres to ethical standards. The accreditations listed below are through private agencies, not the government. However, these entities are recognized as authorities in the industry and have missions to promote ethical debt management practices.

The American Fair Credit Council (AFCC), formerly known as the TASC, advocates for consumers. To be AFCC accredited, a company must be fully compliant with FTC regulations and undergo an annual renewal process.

The International Association of Professional Debt Arbitrators (IAPDA) offers certifications and exercises for debt specialists. The employees at companies that are IAPDA certified have been professionally trained in debt management best practices and upholding ethical standards.

The United States Organizations for Bankruptcy Alternatives (USOBA) has rigorous standards that go beyond FTC regulations, and debt consolidation companies must adhere to them to be certified.

Lastly, look closely at the supplemental resources a company offers. While any company can provide negotiation or consolidation services, the best ones provide solutions for managing your finances and staying out of debt. Any company that’s looking for repeat customers should be avoided.

What we evaluated, what we found

Debt consolidation programs require you to submit personal identifying information and meet a minimum debt limit before you can enroll. Because of these requirements and debt consolidation’s negative impact on your credit score, our reviewers were unable to fully test the multi-step debt consolidation process. While we didn’t test the process, we evaluated other important aspects of the programs themselves, such as customer service and industry credibility.

Your financial and personal needs determine which company is best for you, but the following factors are important to consider as you decide which debt consolidation program to pursue, no matter your situation. Since these programs can take years to complete, it is vital to consider all the information up front.


How forthcoming a company is with information is a huge factor when choosing a debt consolidation company. Before you sign anything, make sure you understand the company’s history. Due to the New Rule, there are things a company legally must disclose to you before you enroll in its program. These include educated estimates of the potential length of your program, the cost of your program, your rights as a consumer, and the fact that you are still responsible for your debts and may receive collection calls.

Companies legally cannot charge upfront fees for services and must provide an upfront estimate of how long your program will take. Also, they should never put pressure on you to disclose personal information, such as your bank information, before you enroll in their program.

Finally, consolidation companies cannot promise to stop collection calls. Collection agencies are within their legal rights to contact you. While your debt consolidation company may attempt to reduce the number of calls you receive, they might not stop, especially if you stop making your payments to your creditors as part of the program.

For our tests, we examined how well a company adhered to these standards. We contacted each one multiple times over the phone and through email. We asked detailed questions about the program requirements, including the length and cost of the program. We also asked about upfront fees and what companies do stop collection calls. Lastly, we made note of any companies that pushed us for personal information during the consultation. Companies should provide a consultation and all relevant information before pushing you to enroll.

In these tests, New Era Debt Solutions was the most transparent. Representaives were forthright in answering our qusetions, and the information was consistent. In addition, the company website has a detailed Truth and Transparency section dedicated to explaining the processes of its program and the FTC regulations. Many companies advertise that they never charge upfront fees but fail to acknowledge that they legally cannot do so. New Era clearly explains the FTC rules about upfront fees and does not try to take credit for lack of advanced charges.

In addition to restrictions on advance fees, the FTC requires that you are named the owner of any dedicated account used for debt settlement plans and that the funds in that account can be withdrawn at any time. The FTC also requires settlement companies to make disclosures about the potential drawbacks of joining a settlement program. To learn more about these regulations, consult the FTC’s website.

Customer service & resources

Most debt consolidation programs provide a personal advisor who manages your account for the duration of your program. This personalized attention and familiarity with your accounts is especially important because of the amount of time a consolidation program takes.

In our tests, we evaluated how thoroughly representatives explained the debt consolidation program and other available debt relief options. While debt consolidation can help you manage your debt, it is not the only solution, and sometimes it is not the right fit for you. The best debt consolidation companies encourage you to examine all your options instead of forcing you into one.

Pacific Debt Incorporated scored especially well in customer service. Its support agents were polite and not pushy. Additionally, when they did not have the answers on hand, they sought them out and promptly followed up with us.

Due to the length of debt consolidation programs and the amount of money and discipline required on your part, it is vital to learn as much as you can about a company before beginning its program. Seek out companies that provide transparent information, adhere to FTC regulations and offer consistent, personal support.

What is credit counseling & how can it help?

Depending on the amount or type of debt you have, you might be referred to a credit counselor. Most of the debt consolidation companies we reviewed refer you to a credit counseling firm if you have around $7,500 or less in unsecured debt such as credit cards and personal loans.

Credit counseling usually entails two things. The first is a call with a certified counselor. During this call, you go over your expenses, income and savings, and they help you create a budget. They can also point you to resources for getting credit reports. Credit counselors can also recommend ways to manage your debt – for example through bankruptcy, debt settlement or debt management plans managed by the credit counseling agency.

Under a debt management plan, you make payments to the credit counseling agency, which then disperses the payments to your creditors. Credit counseling agencies can usually get some concessions, such as reduced interest rates or an elimination of late fees. Keep in mind that a debt management plan is ideal for credit card debt and doesn’t often work with other types of debt.

There are some costs associated with a debt management plan: a setup fee and a monthly fee. Monthly fees can range between $15 and $30, and setup fees usually fall between $20 and $40. This is different from a debt settlement plan’s fee structure, where you pay between 15- and 25-percent of the amount settled.

Debt management plans tend to take longer than debt consolidation, lasting up to five years. There’s some disagreement about the extent to which a debt management plan affects your credit. According to, the plan itself doesn’t detract from your credit score, but it is marked on your report, which prevents you from getting approved for new credit. As part of the plan, you close your accounts, which also affects your credit score in the short term.

If credit counseling sounds like something that could help you, check out the National Foundation for Credit Counseling’s list of accredited organizations.

Can I get a debt consolidation loan with bad credit?

Some lenders do offer debt consolidations for borrowers with bad credit. Debt consolidation loans do have more generous credit requirements than other types of loans, but if you have poor credit you’re still likely to get a higher rate – as high as 36 percent. High rates make a typical debt consolidation loan a bad option if you have a credit score below 650.

There may be other options, too. Some online personal loans providers, such as Avant and One Main Financial are geared towards borrowers with bad credit. One Main doesn’t have a minimum credit score for its loans and Avant offers loans to borrowers with a minimum score of 580.

You can also try to get a loan through a local credit union. Credit unions tend to have less strict requirements, though with a low score you’re still likely to get a high rate.

If you own your home, you can use a home equity loan to consolidate your debt. Your home is a strong piece of collateral, so lenders will be more likely to lend to you even if you have a low score. Rates on home equity loans also tend to be lower than other types of debt consolidation, so if you own a home, this should be the first option you explore.

How to avoid debt this holiday season

The holidays are a time for big spending. The National Retail Federation estimates the average consumer will spend over $1,000 this holiday season, split between gifts, food and decorations. With that much extra spending, it's likely some of those purchases will be put on credit cards. A Magnify Money survey of spending in 2017 showed that customers who incurred debt over the holidays ended up with about $1,000. The survey also shows that 64 percent of people didn’t intend on taking out that debt.

There are some ways you can limit or avoid getting in debt during the holidays, and the first is to make a budget. Set a spending limit and stick to it. Make a list of all the people you plan on buying gifts for and set spending limits on those gifts. If you have kids, set a limit on how many presents you’ll buy for them. Remember to include additional costs, like gift wrap, decorations and travel, in your budget.

As part of your budget, try to set money aside before the holidays. If you can build up a holiday fund during the rest of the year, you won’t have to resort to putting gifts on your credit cards.

Experiences and homemade gifts are other options. Homemade gifts are appreciated and add a personal touch to the holidays. They’re also a good way to show your talents. They don’t even need to be extravagant. Experiences like a home cooked meal or a day trip can be a welcome alternative.

Is bankruptcy a good option?

Bankruptcy is a scary word, and it’s often seen as a last resort. But if your debt becomes unsustainable or you suffer an injury or job loss that leaves you unable to keep up, it may become your best option.

The two most common types of bankruptcy are Chapter 7 and Chapter 13. Under Chapter 7, all your unsecured debt, including credit cards and personal loans, is wiped out. However, you may be required to relinquish some of your assets. Chapter 13 involves creating a payment plan with your creditors. This usually takes between three and five years, and you aren’t required to give up anything. Chapter 7 can take between six and nine months. To be eligible for Chapter 7, you need to meet certain income requirements.

Bankruptcy is a legal process, and you need to fill out forms and file them in court. You don’t necessarily need an attorney to file bankruptcy, but if you can afford one, it can make it easier to file your case. You’re also required to attend mandatory credit counseling before you file and then again once the bankruptcy is complete.

No matter which type of bankruptcy you use, it has a dramatic effect on your credit, dropping your score anywhere from 130 to 240 points. Chapter 7 bankruptcy stays on your credit report for 10 years and Chapter 13 stays on for seven years. You can start building up your score after you complete your bankruptcy, but your credit options will be limited.

DIY debt consolidation

You can settle debt on your own, without paying a debt consolidation company to help you. In some cases, it is quicker and less expensive than using a settlement company. You have to be dogged though since it requires negotiating directly with your creditors.

Before you start your own debt settlement negotiations, you need to be delinquent on your debts. Typically, you need to be more than 90 days behind on your payments, though the longer you haven’t paid, the more likely you’ll be able to negotiate a good settlement. After around five months, creditors will start to send your debt to collections agencies, so they may be more eager to settle.

An advantage of doing this yourself is you don’t pay fees to a settlement firm. Typically, you pay between 15 and 25 percent of the amount the company settles for. So if the company you hire settles $10,000 worth of debt, you’ll pay as much as $2,500 in fees.

You also need to have money to actually settle. Most creditors prefer lump-sum payments, but you may be able to negotiate payment plans. Debt settlement is usually easier if you have some hardship, such as losing a job or medical problems, that prevents you from paying other debts. has a list of tips for negotiating your own settlement.

One important thing to remember is debt settlement or consolidation hurts your credit. You’ll have late payments on your report regardless of what you do, but you may persuade your creditors to mark them as “Paid as Agreed,” which is less harmful than having them marked as “Settled.”

Debt consolidation scams to watch out for

Debt consolidation and settlement companies are numerous. And though many are reliable and honest, particularly those we reviewed, this industry isn’t without scammers. Here are some scams to watch out for when looking at your debt consolidation options.

Student loans scams are especially prevalent. Student loans account for more than $1 trillion of debt in the U.S.  Debt settlement programs only work on unsecured debt, usually credit cards. Depending on if your student loans are federal or private, you can consolidate them through government programs or private lenders.

Watch out for companies that advertise they can help you consolidate your federal loans. These companies offer to help you for a fee, but it’s free to consolidate your federal student loans through the government. Avoid companies that list a processing fee, consolidation fees or administration fees for this service.

Also, beware any service that asks you to stop making payments on your loan, and avoid companies that claim an affiliation with the Department of Education. You can consolidate your federal loans directly through the government. If you have private student loans and are having trouble making payments, you can contact your service provider directly and work out something with them.

Further, don’t work with companies that charge advance fees. Some may offer to help you get a better rate but charge upfront fees. If a company cold calls you, consider it a warning and don’t use its services. Nerdwallet has a database of companies to avoid.

How do different debt solutions affect your credit?

Depending on how you choose to deal with your debts, you may notice it impacts your credit minimally or quite severely. If you’re looking into debt settlement or bankruptcy, your credit is maybe the least of your worries – you’re likely more interested in getting out from beneath your debt. But knowing how they affect your credit can help you rebuild after you’ve dealt with your debt.

Using a mortgage refinance, home equity loan or personal loan to consolidate your debt impacts your credit the least. Consolidating your loans into one can result in lower payments and lower rates, though it can extend the length of time it takes to pay off your debt. If your debt problems stem from inadequate income as a result of losing a job or something similar, you may want to look at other options.

Just making minimum payments is an option. However, it significantly impacts both the length of time it takes to repay as well as the total amount you pay back thanks to the interest accrued in that extra time.

Debt settlement plans are another option. They require you stop paying your creditors, so your score will take a hit due to late payments. Settled debts are often marked as “paid, settled,” which is less positive than debts paid in full. Settlements usually stay on your report for seven years.

Bankruptcies have the biggest impact on your score. A bankruptcy can reduce your credit score by as much as several hundred points, and depending on what type of bankruptcy you declare, it can stay on your report for seven to 10 years.

Debt avalanche vs debt snowball: methods for paying down your debt

Depending on how many debts you have and your current income and expenses, you may be able to pay off what you owe without a consolidation loan or a program that could damage your credit. There are two popular techniques for paying down your debt: the debt avalanche and the debt snowball.

The avalanche method aims to pay down high interest debt first. You prioritize your debts in order of interest rate and make larger payments on the highest rate debt while continuing to make minimum monthly payments on the lower interest ones. The idea is you’ll save money in the long run by getting rid of the most expensive debts first.

The snowball method is similar, but it prioritizes paying off the debt with the smallest balance first. Again, you keep making the minimum payments on your other debts while focusing on those with the smaller balances. If two debts have similar balances, focus on the one with the highest rate.

Experts disagree on which method is the best. The avalanche method is likely to save you more money in the long run because you eliminate the highest interest rate debts first. However, some studies show there’s a psychological boost from paying off a debt, which can spur you to pay off other debts. As such, the snowball method may be more motivating.

Examine your spending and budget and see if there’s money you can reallocate to making higher payments on one of your debts. If you fall behind on your other debts while trying one of these techniques, that’s when you should look into debt consolidation or settlement.

How to deal with debt collections

Having debts sent to collectors can be scary. In some cases, even if you’re just one day late on a payment, your creditor can send your debt to collections. The actual time depends on the specifics of your debt and the creditor, but six months is more typical.

After that period, your creditor will write off the debt and sell it to a collection agency. When a debt is in collection, you should expect to be contacted by the agency. However, there are restrictions on how collectors can contact you. They can only call between 8 a.m. and 9 p.m., cannot use abusive language and cannot contact you at work. If they violate any of these laws, contact the Consumer Financial Protection Bureau.

Debts that go to collection stay on your credit report for seven years and can affect whether or not you get approved for loans. If you’ve paid off the debt, you can ask the creditor for a goodwill deletion – it will remove the collection but will still show any late payments leading up to the debt going to collection.

If one of your debts goes to collection, you have several options to deal with it. For example, you can negotiate a payment plan. You can propose a plan to the collection agency and work with it to find something that works for you, but make sure the plan fits in your budget so you don’t miss payments. If you can pull together the money, paying it all off in one lump sum solves the problem. Another option is to work to settle the debt for an agreed on amount.

If you’ve missed payments, you may have signed up with a debt consolidation company and started a settlement program. These companies have procedures in place to help you deal with collection calls.

How much do different debt solutions cost?

Depending on how you choose to deal with your mounting debts, you also take on some additional costs. These costs come from interest rates and additional fees charged by whichever services you end up using. Using any of these methods can help eliminate your debt, but you may need to change the spending patterns that led you to being overwhelmed in the first place.

If you’ve owned your home for long enough to build up equity in it, a cash-out refinance or home equity loan may be one of the lowest cost ways to eliminate your debt. You replace the monthly payments on your credit cards and other debts with the payment on your mortgage or home equity loan. Typically, your interest rate will be lower than those on the debts you pay off, and you only have to pay closing costs.

Debt consolidation loans are similar in spirit – you use the loan to pay off your debts and then have a single monthly payment. Interest rates are higher than on home equity or mortgage refinances but less than what you pay on credit cards. You do need to have good credit for these options.

Debt settlement is a good option if you’re having trouble making payments. There are no interest rates when you enroll in this type of program. You make a single monthly payment, and the company you work with negotiates with your creditors to find a way to settle your debt. Typically, you pay around 20% or more of the amount of debt that is settled in fees.

Bankruptcy is the most drastic option and has a significant impact on your credit. The cost of bankruptcy depends on which Chapter you file. You pay filing fees and attorney fees. Depending on your financial distress, you may be able to get some of the fees waived.

What is debt-to-income ratio?

Debt-to-income (DTI) ratio is a measure used by lenders to track how your debt compares to the amount of money you make. A low DTI helps your credit score and improves your likelihood of getting approved for a mortgage or other loan.

For example, if you earn $3,000 a month and pay $800 toward a mortgage, $300 toward a car and $100 toward credit cards, you would total your debts (800+300+100=$1,200) then divide that number by your income ($1,200/$3,000=0.4), which results in a debt-to-income ratio of 40%. You can use an online calculator to find your own DTI.

The ideal debt-to-income ratio is 36% or lower, though you can still get approved for loans with a DTI of up to 49%. However, the lender may prefer you find ways to lower your DTI. Anything above 50% means you spend a significant portion of your income on debt.

A high DTI indicates that debt is a problem for you and monthly payments are eating into your earnings. This means debt payment methods like the avalanche and snowball methods or debt consolidation loans may not be a good option. In cases like this, you may be better off looking into debt settlement plans. You typically have lower monthly payments while enrolled in a debt settlement program.

Signs you might have debt problems

Debt is an unfortunate fact of modern life, and the average American family has over $6,900 in credit card debt, according to a Nerdwallet survey. Auto loans, student loans and mortgages are other extremely common types of debt. While you may be managing your debt load successfully, even a small change in income can result in it becoming a problem. Here are some warning signs your debt may get out of your control.

You’re only making minimum payments

If you can only afford the bare minimum each month, it may be a sign of trouble to come, especially if unexpected emergencies arise. It's also expensive since you’re not making much of a dent in the balance and interest will continue to add up.

You’re maxing out your card

The credit bureaus look at how much of your available credit you use – too much and it can affect your score. So, in addition to showing you may be living beyond your means, maxing out your cards impacts your credit score.

More than a third of your income goes to debt

Your debt to income ratio is the percentage of your monthly income that goes to paying down debt. Any ratio over 36 percent is typically considered bad and can give you trouble when looking for loans. Anything north of 50 percent should serve as a warning sign that your finances are lopsided.

You start missing payments

If you miss a payment, you should start looking for a way to reduce your debt. It can be as simple as making a budget and cutting back on some things, or it can be something more drastic like debt settlement or credit counseling.

New Year’s resolutions for debt

As the calendar flips from 2019 to 2020, getting your finances under control may be among your goals for the new year. Here are some resolutions you can make to tackle your debt:

Make a budget

Holidays always make spending go haywire, so the start of a new year is a good time to take stock of your spending habits. Try to find places you can cut back – for example, you may find you have subscriptions to websites or services you don’t use very often or that you could cut back on eating out or seeing movies. In addition, look into using a personal finance program like Mint to keep track of your spending.

Pay off debts

If you find you have additional money each month thanks to your new budget, resolve to put it toward paying down your debt. There are different strategies you can try, such as the snowball or avalanche method, but even just making more than the monthly minimum payments can help you begin to reduce your debt load.

Repair your credit

A debt consolidation loan can help your finances by reducing the amount you pay in interest. Also, you’ll only have one monthly payment, which can streamline your budgeting.

However, you may need to spruce up your credit before being eligible for a debt consolidation loan, since they require a good credit score for approval. Get copies of your credit report and check your credit score. You can improve your credit score by reducing the amount of credit you use, so avoid maxing out any of your cards in 2019. Also, check your report and contest any old or inaccurate entries.

Types of debt and how to manage them

How you manage and mitigate your debt problem depends on the type of debt you have. Debt can be classified as either secured or unsecured. Secured debt has some kind of collateral attached, like a home or car, and if you fail to make payments, your collateral may be repossessed. Unsecured debt has no collateral attached to it. Below are some of the most common types of debt and the best ways to manage them when they become a problem.

Credit cards

Credit cards are the most common type of debt – more than 40 percent of all Americans carry some kind of credit card debt. Credit cards are unsecured and have higher interest rates than other types of debt. You can make monthly minimum payments but stand the risk of paying more in interest over the course of your loan when you do. You can manage credit card debt with the snowball or avalanche repayment strategies. Credit card debt can also be settled, consolidated or discharged in bankruptcy.

Student loans

This is one of the fastest growing categories of debt in the U.S., with more than 44 million people owing money for their educations. Student loan interest rates aren’t as high as those on credit cards, but their sizes, sometimes over $100,000, means a long repayment period. Student loans can be consolidated, but you need to demonstrate significant hardship to discharge them.

Payday loans

Payday loans are among the most expensive types of debt you can have. They are considered unsecured debt and have short terms but high interest rates. Payday loans can be discharged in bankruptcy and can be settled, usually after they’ve been sent to collections.

Can you consolidate medical debt?

With medical costs rising, more and more Americans are incurring debt to pay their bills. The average household spends more than $4,600 a year on medical care. According to the CFPB, one in five credit reports has a late medical bill that has been sent to collections. Like all debt, medical debt can be consolidated in a variety of ways.

One way to consolidate or eliminate your medical debt is to negotiate with your creditor. Medical bills often contain errors, so when you get one, review it to make sure it's accurate. If something is wrong, contact your insurance company and the provider’s billing department to get it corrected. You can also apply for financial hardship, especially at a hospital, which can help reduce the amount you pay.

Common ways of consolidating consumer debt also apply to medical debt. You can get a 0% balance transfer card, a personal loan or a home equity loan. All of these depend in part on you having good credit, which may not be the case if you’ve missed any payments on your medical debt. However, if you’re still making payments and have good credit but want some flexibility and relief, these may be good options.

Working with a debt settlement company is another option. You’ll stop making payments on your bill and instead put the money into a fund the settlement company will use to negotiate with your creditors. This option can damage your credit since you don’t make payments while the negotiations proceed.

Are balance transfer cards a good option?

If you’ve got multiple credit cards, personal loans or student loans and worry about struggling with the payments, consolidating the balances onto a single card may be a good option to help you better manage those payments.

With a balance transfer card, you’ll move your existing balances onto just one card. This doesn’t pay them off, it just moves them to one card with one interest rate. Typically these cards offer introductory APRs of 0% for several months; this is a good way to get a leg up on your payments and avoid getting hit with additional interest.

When looking for a good balance transfer card, keep your eyes out for a few things. First, there may be a fee to transfer your balance. This can be between 3% and 5% of your existing balance. So if you transfer $10,000, you’ll pay between $300 and $500. This is less than the fee you’d pay with a debt settlement company, who typically charge between 15% and 25% on debt they settle. Some balance transfer cards don’t have transfer fees, so keep an eye out for those.

Another thing to keep in mind is that some cards will only let you transfer a certain percentage of that card’s credit limit. You’ll also need to factor fees into that amount. So if you have a balance transfer card with a limit of  $10,000, but you are only allowed to transfer 75% of the limit, you’ll only be able to transfer $7,500. And that could leave you with a remaining balance on one of your other accounts.

Typically, you’ll need a high credit score to be eligible for a balance transfer card. Applying for one will result in a hard inquiry, which will affect your score. Generally, if you’ve fallen behind on your current payments, you may need to look for other avenues for debt reduction, since you’ll likely not be eligible for a balance transfer card.

Student loan consolidation

Student loans are one of the most common types of debt in the U.S., making up $1.5 trillion of the population’s debt load. The average student owes around $37,000, and average monthly payments are around $330. Though the federal government is the biggest lender, private lenders account for around 20 percent of the total student loan volume. If student loan debt becomes hard to manage, refinancing and consolidation are two ways to make payments more manageable.

How you consolidate your debt depends on if you have federal loans, private loans or a combination of both. If you only have federal loans, you can apply for consolidation through the Department of Education. Consolidating your federal student loans is similar to consolidating other loans. You won’t get a lower rate, though you can convert variable rate loans to a fixed rate. The primary benefit of consolidating your federal loans is they are combined into a single package and you have just one monthly payment. You can also get a new term, often up to 30 years. The rate for your consolidated loan is the average of your loans’ current rates, rounded to the nearest eighth of a percent.

If you have private loans or a combination of private and federal loans, you can apply to consolidate them through another lender. There are stricter application requirements. For example, you need to have a source of income and good credit – if not, you may need to find a co-signer. When you consolidate your loans through a private lender, you can typically get a lower rate and longer term.

However, private consolidation has some drawbacks. Because it has more requirements, especially regarding your credit, it can be difficult to get approved. And if you are approved, you may not get the best rate. Terms are also shorter, typically 20 years as opposed to 30 years for a federal consolidation. In addition, you waive some fringe benefits – for example, forbearance in case you lose your job.

Can you use your home’s equity to consolidate debt?

If you’ve owned your home for a while and have built up substantial equity, you may be able to tap into that equity as a way to consolidate the medical and credit card debt you’re struggling with. Getting a home equity loan has some advantages over other methods of debt consolidation.

With a home equity loan, you tap into the equity you’ve built up over the years of paying off your mortgage. Home equity loans typically have much lower rates than debt consolidation loans or balance transfer credit cards. The average rate as of February 2018 is around 5.95%, while the best rate for a debt consolidation loan starts at around 13%. And even if you don’t qualify for the best rates, by combining multiple interest-charging accounts into one loan, you’ll still save money.

Another advantage of a home equity loan is lenders typically have less strenuous credit requirements for approval. With a debt consolidation loan, you need a score of around 720 to get a good rate, and a score lower than 680 makes approval unlikely. You can get a home equity loan with a score of around 620, and your credit score contributes less to the decision than for other loans. Lenders also look at your debt-to-income ratio and other aspects of your financial history.

However, there are some disadvantages of getting a home equity loan and using it for debt consolidation. For example, the process for getting one can be time consuming – you need to get an appraisal and go through an underwriting process similar to the one for your first mortgage. This can take upward of a month in some cases. Typically, a debt consolidation or personal loan has a shorter approval process.

Can you consolidate secured debt?

Typically, debt consolidation companies work with unsecured debt like credit cards, student loans and medical debt. It’s harder to consolidate or settle secured debt, such as a mortgage or auto loan, because they are attached to collateral – the home or the car. As such, if you fall behind, the lender will repossess or foreclose. If your secured debts are contributing to your financial problems, there are some things that can help. However, you can’t consolidate them under one loan.

If your mortgage is causing problems, you may be able to refinance to lower your interest rate or loan term, which can free up money to pay down other debts or to make larger payments to pay off your debt. If you had poor credit when you bought your home, you may have been saddled with a high rate, which refinancing can lower significantly. Keep in mind that like any mortgage, a refinance has fees and other costs associated with it.

Another option is a cash-out refinance, which lets you refinance your home and take out any equity you’ve built – you can then spend the money however you want. For example, you can use a cash-out refinance to pay off an auto loan, which may be a good option, depending on your auto loan’s terms. If your car loan has no prepayment penalty and most of your current payments are going toward interest, you could save significantly by paying off your auto loan.

Like a mortgage, you can refinance your auto loan to get a lower rate or to shorten the term. If your credit has improved since you first got your loan, this may be a good idea. However, avoid refinancing if it would extend your term or if your current loan has a prepayment penalty that wouldn’t be offset by savings from a refinanced loan.

How to rebuild your credit

Dealing with your debt, whether through settlement or bankruptcy, can damage your credit. The effects can last for years and can make it hard to get approved for loans, apartments or even jobs. Debt settlement plans generally require you to stop making payments for six months, which dings your credit with repeated late payments. Settled debt will also remain on your report for seven years. Bankruptcy can drop your credit score by as much as 200 points and will stay on your report for seven to 10 years depending on which chapter of bankruptcy you file.

It's possible to rebuild your credit,and most important step is to start building your credit file again. To do this you’ll need to open another line of credit, usually a credit card. This may seem like an invitation to more trouble, but credit utilization is one of the factors that most influences your score. Take care to always pay down the balance as much as possible each month. It’s best to pay it off in full each month, if only to avoid accruing more debt! In some cases, you may not be eligible for a standard credit card, so you may have to look for a secured card which requires you to put some money down. If you do get a secured card, make sure that it reports payments to the credit bureaus.

When you begin working toward rebuilding your credit, it's important to maintain good habits. Don’t overextend yourself or overspend. Keep balances manageable and try to stick to a budget. Only open one or two credit cards.

Some of your ability to rebuild depends on how extensive your credit file was before. If you’ve had many accounts before and closed them with on time payments, your score may bounce back quicker than if you had a relatively thin file.