Debt Consolidation Programs & How They Work

What Is a Debt Consolidation Program?

Debt consolidation combines high-interest credit card bills into a single monthly payment at a reduced interest rate. Paying less interest saves money and allows you to pay off the debt faster.

Debt consolidation is available with or without a loan. It is an efficient, affordable way to manage credit card debt, either through a debt management plan, a debt consolidation loan or debt settlement program.

If you can't make more than minimum payments on your monthly credit card bills, a debt consolidation program is a very good way to regain control of your finances.

Americans owed $1.25 trillion on credit cards at the end of the first quarter of 2026, and 7.10% of that balance moved into serious delinquency over the previous year, according to the Federal Reserve Bank of New York Household Debt and Credit Report. Consolidation is the step most people take before the account reaches a collector.

Types of Debt Consolidation Programs

There are three forms of debt consolidation programs:

1. Nonprofit debt consolidation
2. Debt consolidation loans
3. Debt settlement

The first two are aimed at consumers who have enough income to handle their debt, but need help organizing a budget and sticking to it.

The third – debt settlement – is used in desperate situations where the debt has reached unmanageable levels.

If you're not sure which is the best way to consolidate debt, call a nonprofit credit counseling agency like InCharge Debt Solutions. A certified counselor will go through your income and expenses, help you create an affordable monthly budget, then offer free advice on which consolidation program will eliminate your debt.

"Credit Counseling will develop an action plan that is tailored to your exact needs," Rebecca Steele, then Chief Executive Officer for the National Foundation for Credit Counseling, said. "When you're in debt, you need to understand your budget, what it's going to take to resolve your debts and how you can put fair, affordable payments in place to achieve that goal. That is what credit counselors should do for you."

The Consumer Financial Protection Bureau draws the same three-way distinction and explains where each one fits in its guide to credit counseling, debt settlement and debt consolidation.

Nonprofit vs. For-Profit Debt Consolidation

This is the question that separates the two halves of the industry, and the page has never answered it head on.

A nonprofit credit counseling agency is funded largely by the creditors it works with, so the counseling session costs you nothing and the counselor has no product to sell you. A for-profit company earns its money from you: origination fees on a loan, or a percentage of the balance you enroll in settlement. Both can be legitimate. They are paid in opposite directions, and that is worth knowing before you pick up the phone.

InCharge Debt Solutions is a 501(c)(3) nonprofit and a member of the National Foundation for Credit Counseling, which publishes the accreditation standards every member agency has to meet. You can verify any agency through the NFCC agency finder. Whichever route you take, the Federal Trade Commission warns against any company that charges a fee before it settles a debt, in its guidance on debt relief scams.

Debt Consolidation Program Options

InCharge (nonprofit debt consolidation), Avant (debt consolidation loan) and National Debt Relief (debt settlement) each represent different segments of the debt consolidation industry. We'll explain the advantages and disadvantages of each to help you distinguish between the three types of debt consolidation programs, as well as how to get started.

Nonprofit Debt Consolidation

Nonprofit consolidation is a payment program that combines all credit card debt into one monthly bill at a reduced interest rate and payment. These programs are offered by nonprofit credit counseling agencies, who work with credit card companies to arrive at a lower, more affordable monthly payment for you. Nonprofit debt consolidation is the truest form of a debt consolidation program. It’s more of a service than what you get with a loan, and a purer form of consolidation than debt settlement. You have the backing of a nonprofit company with credit counselors to answer questions and guide you through difficult financial situations.

Pros of Nonprofit Debt Consolidation:

• This is not a loan and your credit score is not a factor in qualifying.
• Reduced interest rates (somewhere around 8%, sometimes less) help lower monthly payments.
• Credit counselors assist in developing an affordable monthly budget.
• Financial education offered to keep this from happening again.

Cons of Nonprofit Debt Consolidation:

• If you miss a monthly payment, all concessions granted by the creditor could be canceled.
• There is a one-time setup fee between $50-$99 as well as a monthly service fee averaging $34, but the savings on interest should more than make up for the fees.
• You are required to stop using credit cards except for one emergency card.

Sign-Up Process:

1. The easiest way to enroll is through online debt consolidation or you call a counselor at a nonprofit credit counseling agency like InCharge Debt Solutions.
2. Authorize the agency to access a list of your credit card debts and monthly payment information from your credit report.
3. Gather information about your monthly income and expenses to determine how much money you have available for credit card consolidation.
4. Be prepared to answer questions about your goals and the timeline you’re working toward to become debt free.
5. Credit counselors will assess your situation and tell you if you qualify for a nonprofit debt consolidation program. If not, the counselor may recommend a loan, debt settlement or possibly bankruptcy as a solution.

See How Much You Could Save on Credit Card Payments

Complete a quick online assessment to see your potential savings on credit card payments through an InCharge Debt Management Program.

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Save an Average of $75-$300+ Per Month

Be Debt-Free in 24-42 Months

Cut Interest Rates By 3x (8% on average)

Pay Up To 50% LESS on Total Debt

Trusted Nonprofit Since 1997

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Debt Consolidation Loan

The traditional form of credit consolidation is to take out one large loan and use it to pay off several credit card debts. Because you now only have one loan, a debt consolidation loan, you have one monthly payment, which simplifies the bill-paying process. However, this can be tricky. Lenders rely heavily on your credit score as a signal that you will repay the loan. If you are having problems paying credit cards, your credit score may suffer and there is legitimate concern you will repay the loan. You could be denied a loan or, at the very least, charged a high interest rate. Be aware that application and origination fees could add to the cost of the loan.

Pros of Debt Consolidation Loans:

• Interest rates for loans should be lower than rates for credit cards.
• Loans can be used to pay off any type of unsecured debt.
• A single payment every month removes stress of late payments.

Cons of Debt Consolidation Loans:

• Eligibility and interest rates are dependent upon your credit score, which could be very low if you have a lot of credit card debt.
• There is little flexibility with loans. A loan is legally binding, while nonprofit debt consolidation and debt settlement can be cancelled at any time.
• Loans come with origination fees that need to be paid upfront. These fees can range from 1%-8% of your loan amount.
• A loan clears the cards but does not change the spending that filled them. The Consumer Financial Protection Bureau makes the same point in its note on consolidating credit card debt: if the balances come back, you now owe the loan and the cards.

Sign-Up Process:

1. Make a list of unsecured debts you would like to consolidate and add each balance (the total amount you owe) to find out how much you need to borrow.
2. Check your credit score. If necessary, take steps to raise it over 680. Most likely, that will mean making on-time payments for at least three months.
3. Determine the average interest paid on those debts for comparison purposes. If you have a low credit score, it’s not a sure thing your interest rate will improve.
4. Apply to at least three lenders whether it be a bank, credit union or online lender, and then compare the terms against each other and what you are currently paying.
5. Use the loan money to pay off each debt individually.

Debt Settlement

Debt settlement sounds like a tempting option to consolidate debt. Who wouldn’t want to pay half (or less!) of what you owe on credit card debt? But this is considered a desperation measure for a reason. Ads boasting that settlement companies like National Debt Relief can get at least 50% of your debt forgiven, don’t tell the whole story. That figure doesn’t include the fees you will pay for the service; the late penalties you incur while settlement negotiations take place; and whether a creditor will even accept the offers made. The results from this form of debt consolidation definitely are mixed. Do all the math before you choose this option. It should be noted that attorneys offer debt settlement in addition to companies like National Debt Relief.

Settlement is also the route people mean when they ask about credit card debt forgiveness. This is a nonprofit version of settlement in which prearranged agreements with creditors can forgive up to 50% of your debt.

Pros of Debt Settlement:

• You will pay less than what you actually owe.
• If the creditor is willing to negotiate and you have enough money to make an attractive offer, this option could take less than a year.
• It can stop calls from debt collectors and creditors.
• It will help consumers avoid bankruptcy.

Cons of Debt Settlement:

• The creditor doesn’t have to accept your offer, regardless of the amount.
• Debt settlement is highly regulated in 12 states, making it difficult to achieve.
• Late fees and interest add to the balance every month until a resolution is agreed upon.
• By the time you pay fees for the service and the penalties for late payment, your net reduction likely will be closer to 25% of what you originally owed.
• The amount of debt forgiven is considered taxable income.

Sign-Up Process:

1. The first step is to make a list of the debts you plan to settle and do the math to determine the total amount owed on each account.
2. Research at least three debt settlement companies or attorneys – Clear One Advantage, National Debt Relief and Freedom Debt Relief are the 3 largest – and compare the terms for each.
3. Open an escrow account at your bank. Make sure the account is in your name and you have full control of the money.
4. The debt settlement company must deal with each credit card account individually. Typically, there must be at least 40%-50% of the amount owed already in the account before the debt settlement company can make an offer.
5. If a settlement is agreed upon – even if it’s just one account – you must release the money from escrow.

Debt Consolidation Loan vs. Debt Management Plan

Most people arrive at this page trying to decide between these two, and the page currently makes them piece the comparison together themselves.

A consolidation loan is new debt. You borrow enough to clear the cards, then repay the lender. Your credit score sets the rate, so the people who most need a low rate are the least likely to get one. The cards stay open, which is a risk if the spending has not changed.

A debt management plan is not debt. You keep owing the same creditors, but the agency negotiates the rate down and you make one payment to the agency, which splits it among them. No credit check, no new loan, and you can leave at any time. In exchange, the cards close for the length of the plan.

If you are not sure which side of that table you belong on, a free session with a certified credit counselor will tell you which one fits. Call (800) 565-8953.

How Much Does a Debt Consolidation Program Cost?

Cost is the second thing people search after "how does it work", and the answer is currently scattered across four separate sections of this page.

• ● A nonprofit debt management plan carries a one-time setup fee and a monthly service fee, both set out on our debt management program fees. The counseling session itself is free.
• A debt consolidation loan carries an origination fee, deducted before the money reaches you, plus interest for the life of the loan. Ask the lender for the fee in dollars as well as a percentage, because it comes out of what you actually receive.
• Debt settlement costs a percentage of the debt resolved or of the amount saved, charged only after a debt is settled (Federal Trade Commission), before late fees and the tax on forgiven debt.

Set the fee against what you are paying now. The average rate on credit card accounts assessed interest was 22.15% in the second quarter of 2026 according to the Federal Reserve G.19 release of 7 August 2026. If the fees do not save you money, do not sign.

Does Debt Consolidation Hurt Your Credit Score?

It depends which of the three you choose, and the honest answer is not the same for each.

On a nonprofit debt management plan your score usually drops at first, because closing card accounts shortens your average account age and raises your utilization ratio on the accounts that remain. Enrolling in a plan is not itself a negative mark. With on-time payments the score climbs back, and it keeps climbing as balances fall.

With a debt consolidation loan, the application triggers a hard inquiry. After that the loan behaves like any other installment account. Pay it on time and your score improves. Miss payments and it falls.

Debt settlement does real damage. You stop paying creditors to force them to the table, so the accounts go delinquent and then get marked "settled for less than the full amount". Expect a sharp drop in your score, and expect the negative marks to sit on your credit report for seven years (Consumer Financial Protection Bureau).

A free credit counseling session does not affect your score at all. Counselors pull a soft copy of your report, which is not visible to lenders.

Best Debt Consolidation Companies

Consumers have numerous choices for relief through debt consolidation programs. Making the right choice involves an honest assessment of your income and spending habits. In other words: a budget!

If you can create a budget that accurately reflects your spending, you will be in the best position to decide how much you can afford each month to dedicate to eliminating debt.

Here are some companies that offer choices for debt consolidation.

InCharge Debt Solutions

TYPE: Nonprofit Debt Consolidation

HOW IT WORKS: A credit counselor asks questions about your income and expenses to see what debt relief options are available to you, including a debt management program. If you enroll in the program, participating creditors may reduce interest rates on accounts, with rates averaging 8%, although actual rates vary by creditor and account. Each month InCharge debits a monthly payment, which is then distributed to your creditors in agreed upon amounts.

FEES: Credit counseling is free. If you enroll in a debt management program, fees vary by state. The current average setup fee is $52 and the average monthly fee is $34.

LENGTH OF TIME: 24-48 months with no penalty for early payment.

CREDIT SCORE IMPACT: Typically, credit scores will improve after six months of on-time payments. There will be a drop initially due to closing all but one of your credit card accounts.

ACCREDITATION: 501(c)(3) nonprofit, member of the National Foundation for Credit Counseling, and COA accredited.

Avant

TYPE: Debt Consolidation Loan

HOW IT WORKS: First, you must fill out an application and be approved for a loan. Your income and expenses are part of the decision, but credit score is usually the deciding factor. Avant requires a minimum score of 550 and at least $1,200/month in after-tax income. If approved, you receive a fixed-rate loan and use it to pay off your credit card balances. You then make monthly payments to Avant to pay off your loan.

FEES: Interest rates from 9.95%-35.99%. Origination fee up to: 9.99%. Late payment fee: $25.

LENGTH OF TIME: 2-5 years with no penalty for early payment.

CREDIT SCORE IMPACT: Applying for a loan has no effect on your credit score, but missing payments will hurt your score. Conversely, making on-time payments should improve it.

*Terms last verified August 2026

National Debt Relief

TYPE: Debt Settlement

HOW IT WORKS: The qualifying standard is at least $7,500 of debt. You open an escrow account and make monthly payments (set by National Debt Relief) to that account instead of to your creditors. When the balance has reached a sufficient level, NDR negotiates with your individual creditors in an attempt to get them to accept less than what is owed. If a settlement is reached, the debt is paid from the escrow account.

FEES: 15%-25% of the original debt. The company website doesn’t list any other fees.

LENGTH OF TIME: 2-4 years.

CREDIT SCORE IMPACT: It’s a huge negative and it lasts for seven years. Expect your credit score to drop 75-125 points as your bills go unpaid and accounts become delinquent.

*Terms last verified August 2026

What to Look for in a Debt  Consolidation Program

There are many avenues to eliminating debt through debt consolidation, but there are just as many detours that will compound your problem if you are not paying attention.

Keep your guard up against credit repair scams that promise results that don't seem possible. There are plenty of advertisements in this industry that sound too good to be true … and it's because they are! Don't fall for them.

The first thing to look at before joining a debt consolidation program is confidence that the agency, bank, credit union or online lender is there to help you, not to make money off you.

You should be asking how long they have been in this business; what their track record for success is; what do the online reviews say about customer experience; and how much are you really going to save by using their service?

The last question is the most important because you can do any of these debt consolidation programs yourself. So, if the fees charged make it a break-even exchange, there really is no reason to sign up. Your total cost in a program should save you money while eliminating your debt.

Four checks worth making before you hand over any information:

• Ask whether the organization is a nonprofit and whether it is accredited. NFCC members are listed in the NFCC agency finder.
• Ask for the total cost in dollars, not percentages, before you sign anything.
• Treat a fee demanded before a debt is actually settled as a warning sign. The Federal Trade Commission states that "A debt settlement company can't collect its fees from you before they settle your debt" and that "Only scammers will try to collect fees from you before they settle any of your debts or enter you into a debt management plan" (How To Get Out of Debt).
• Walk away from anyone who tells you to stop talking to your creditors.

How Do Credit Consolidation Companies Work?

Credit consolidation companies work by finding an affordable way for consumers to pay off credit card debt and still have enough money to meet the cost of basic necessities like housing, food, clothing and transportation.

The term “credit consolidation companies" covers a lot of ground in the debt-relief industry. They range from giant national banks to tiny nonprofit counseling agencies, with several stops in between and offer many forms of credit card debt relief.

To simplify things, it is easiest to divide credit consolidation companies into two categories:

• Those who consolidate debt with a loan based on your credit score
• Those who consolidate debt without a loan and don’t use a credit score at all

Banks, credit unions, online lenders and credit card companies fall into the first group. They offer debt consolidation loans or personal loans you repay in monthly installments over a 3-5 year time frame.

They start by reviewing your income, expenses and credit score to determine  how creditworthy you are. Your credit score is the key number in that equation. The higher, the better. Anything above 700 and you should get an affordable interest rate on your loan. Anything below that and you will pay a much higher interest rate or possibly not qualify for a loan at all if your score has dipped below 620.

The second category – companies who provide credit card consolidation without a loan – belongs to nonprofit credit counseling agencies like InCharge Debt Solutions. InCharge credit counselors look at your income and expenses, but do not take the credit score into account, when assessing whether you qualify for a debt management program.

Based on the information provided, they recommend debt relief options such as a debt management program, debt consolidation loan, debt settlement or filing for bankruptcy as possible solutions.

Which Debt Consolidation Program Is Right for Me?

It takes research to determine what debt consolidation program is right for you. Each one is geared toward a different set of circumstances.

If you have enough income to pay your bills, nonprofit debt consolidation works in most cases. There is very little risk, and the program is really designed to be a helping hand. You can cancel any time and still have the other programs available as options.

When you take out a debt consolidation loan, you are converting your credit card debt into loan debt. That closes the door on the possibility of later enrolling in a nonprofit debt consolidation program.

Debt settlement requires you to be all in. In order for it to work, you have to create bargaining leverage by stopping all payments to your creditors. Once you go down this road there's no coming back, but if your debts are already in collections, settlement and bankruptcy might be your only option.

If you don't know which program is right for you, credit counseling can help. Credit counselors are certified professionals, who know these programs in and out. They will walk you through your finances – answering any questions, giving advice and making a recommendation based on the information that they have.

Counselor Insight: Clients often begin the process believing they need a consolidation loan, only to discover that a debt management program, hardship option, or self-guided repayment strategy may be a better fit. A complete budget review helps determine which solution best supports long-term success.

– Teri Logan, Manager of Financial Wellness

At the end of the day, the program that's right for you is the one that gets you across the finish line.

A counseling session is free. Call (800) 565-8953 or start online. There is no obligation and no credit check.