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

debt consolidation or debt counseling Credit Counseling vs. Debt Consolidation: Which Is Better for You?

When you are facing debt, you might feel considerable uncertainty and confusion. How should you proceed to minimize the rate of interest you pay? How do you quickly and efficiently eliminate your debt? Should you consolidate your debt or opt for credit counseling to see what your options are?

We hope that this article will help you decide which of the two possibilities–credit counseling or debt consolidation–is right for you and your situation. 

If you aren’t sure about the best way to approach paying off your debt, it’s important to carefully consider your options. You can use resources such as Supermoney to look into debt relief services like credit counseling, debt consolidation, debt settlement, and credit repair.

Credit Counseling: What It Is and How It Works

During credit counseling, you will speak with a certified credit counselor, discuss your finances, and then look at various options for paying off your debt. A credit counselor will help you acquire a broad, objective overview of your financial situation and a better understanding of the consequences of each debt-payoff option. 

To get the clearest and most comprehensive advice possible, provide your credit counselor with all the relevant financial information, such as how much you owe, your monthly income and expenses, any assets in your possession, and so on. 

After a thorough analysis of your financial situation, the credit counselor will suggest several possible solutions. Depending on your individual case, these may be:

  • Budgeting: This will usually include breaking down your monthly income and all of your expenses to figure out where you can make cuts and how much you can put each month towards paying off the debt.
  • Debt management: Typically, this will involve negotiating a repayment plan with your creditors to secure a lower interest rate or a lower amount in minimum monthly payments, though the total amount of debt you repay will remain the same. The credit counselor may serve as a mediator—they receive a monthly payment from you and pay your creditors in turn. Usually, if you stick to the terms of the agreement and make all the payments, this won’t have a negative effect on your credit history. 
  • Debt settlement: This usually involves negotiating with your lenders to enable you to repay a reduced amount of debt. Many creditors have standard policies as to what amount of loan they will forgive and under which conditions. Take into account that this may negatively impact your credit score. 
  • Bankruptcy: Usually, if all other means have failed, this is the last resort a credit counselor would recommend.

In some cases, a credit counselor will charge a fee. But, many times, a National Foundation for Credit Counseling representative will work pro bono or for a very low fee. 

It’s important to know whether a credit counselor receives compensation for the advice they give you, and, if so, whether any action you take will result in higher compensation for the counselor. Knowing this will help you see whether the counselor is truly working in your best interest. 

A debt management program via a credit counseling agency has certain benefits and drawbacks you should be aware of.


  • Credit counseling agencies can typically get lower interest rates from credit card companies and help you negotiate a manageable monthly payment based on your income.
  • You are not taking another loan or opening another line of credit.
  • You can qualify even if your credit score is less than optimal.
  • You will receive valuable financial coaching for the future.


  • If you are unable to keep up with payments, this lack of dependability may nullify the agreement the credit counseling agency had negotiated with your creditors.
  • The agreement will require you to cancel all your credit card accounts except one, which you may only use for emergency purposes. This will reduce your available credit and may negatively impact your credit score. However, your score will improve as you start paying off the balance.

Debt Consolidation: What It Is and How It Works

debt consolidation vs credit counseling

Debt consolidation means taking a large loan and putting it towards paying any smaller debts you may have. When done right, this can minimize the number of payments you make each month, enable you to focus on paying off a single loan, and reduce the amount of interest you pay. 

If you qualify for a consolidation loan at a lower interest rate than your current debts, it means that, overall, repaying the consolidation loan will cost you less than repaying each of the debts separately. 

In most cases, people choose to consolidate unsecured debt with a higher interest rate, like payday loans and credit card debts. 

People commonly use two options for debt consolidation: 

  • A personal loan, which you would typically need to repay within one-to-seven years, may seem daunting, but with a fixed time frame, paying off debt will usually be more effective than with a revolving credit line that requires minimum monthly payments. 

A personal loan will typically have an interest rate between 5% and 36%, but the lower end of this range is uncommon. Even people with a great FICO credit score usually won’t receive an interest rate lower than 10%.  

  • A credit card that offers a promotional 0% APR (annual percentage rate) on balance transfers gives you a chance to repay your debt with zero interest. However, the downside is that these offers typically last from several months to just under two years. If you fail to repay the amount in full during this time, you’ll have to pay with the standard interest rate or find another promotional offer. 

In some cases, you might have to pay a balance transfer fee that may amount to as high as 5%.

Here are some pros and cons of taking a debt consolidation loan:


  • You will receive a lump sum that will enable you to pay off all your debts at once.
  • Typically, the interest rate on the consolidation loan will be lower than what you would pay otherwise.
  • You can still use your credit cards while you are repaying the consolidation loan.


  • A consolidation loan usually comes with borrowing fees. 
  • If your credit score is not high enough, you might not qualify for a loan or may only qualify for a loan with a high-interest rate.
  • You won’t have a go-between, like a credit counseling agency, to negotiate with your creditors on your behalf.
  • If you fail to make payments on time, you might have to pay late fees and possibly other penalties.
  • A consolidation loan adds another line of credit, which negatively impacts your credit score.

Credit Counseling vs. Debt Consolidation: Which Should I Choose?

Both debt consolidation and debt management via a certified credit counselor are practical, time-proven ways to get out of debt. 

Knowledgeable credit counselors can be lifesavers for people who:

  • are struggling not just with their current debt but with their finances in general 
  • are overwhelmed by everything finance-related
  • can’t even make the minimum monthly payments
  • don’t know how to start budgeting

The insight and clarity that competent credit counseling provides may help such people start on a new road to financial well-being. 

A reputable credit counselor will be committed not only to helping you address your present debt issue but also to give you the knowledge and motivation necessary for more successful financial planning in the future. They may require you to participate in financial education and credit counseling programs as a condition for getting approval for a debt management plan.

Debt consolidation, on the other hand, can be an obvious choice for people who can repay their debts easily enough but are looking into paying less interest. For example, you might have several credit card bills that you can consolidate into a personal loan with a much lower interest rate. This will save you money and enable you to be debt-free sooner.

Sometimes You Need Both

In some cases, credit counseling and debt consolidation will go hand in hand–you might need credit counseling to realize that debt consolidation is the best option for you. 

Ultimately, paying off debt is a matter of hard work and discipline. Credit counseling may help you get a better insight into your finances, give you the tools that you need to budget effectively, and offer you a roadmap towards becoming debt-free. In the end, however, it’s up to you. Are you motivated enough to do what it takes to pay off debt? Are you willing to face your financial situation and, if necessary, make significant lifestyle changes? 

Before you make any decision, weigh your options and compare several suggestions. Always make sure you understand the terms and interest rates of any loan. Once you choose a plan, stick to it until you are debt-free.