Debt Review vs A Debt Consolidation Loan (2024)

FAQs

What is better, debt consolidation or debt review? ›

You should also consider your overall financial goals. If you want to become debt-free as soon as possible, debt review may be the better option. However, if you want to simplify your payments and lower your interest rate, debt consolidation may be the way to go.

For most people, debt consolidation is the better choice. When comparing the two options, here's what to consider: With debt consolidation, you'll pay less in fees. Balance transfer cards typically charge a balance transfer fee of 3% to 5%.

A home equity loan or HELOC

So, if you're looking for an alternative to debt consolidation loans, this could be a great time to consider home equity. The obvious risk is that your home serves as collateral, so failing to repay the home equity loan or HELOC could lead to foreclosure.

The potential drawbacks of debt consolidation include the temptation to rack up new debt on credit cards that now have a $0 balance and the possibility of hurting your credit score with late payments. Also note that the best personal loans go to consumers with very good or excellent credit, so not everyone can qualify.

Cons (disadvantages) of debt counselling

When you are under the debt review (debt counselling) process, you will no longer be able to take out anymore credit. This means that any loans or credit you apply for under the process will very likely be rejected.

Lenders might not advertise it, but most of them have a minimum credit score required to get a loan. If your score is less than 670, you might be out of luck for a debt consolidation loan. Even if you're over 670, a problematic debt-to-income ratio (more on that below) or payment history could derail your loan.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.

Debt consolidation is a good idea if your monthly debt payments (including mortgage or rent) don't exceed 50% of your monthly gross income, and if you have enough cash flow to cover debt payments.

Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

Is there really a debt relief program from the government? ›

Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.

In general, National Debt Relief has strong customer reviews. The company is accredited by the Better Business Bureau (BBB) and it has an A+ rating. On TrustPilot, it has a 4.7 out of five rating based on over 39,000 reviews.

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

You might lose borrower benefits such as interest rate discounts, principal rebates, or some loan cancellation benefits associated with your current loans. Consolidating your current loans could cause you to lose credit for payments made toward IDR plan forgiveness or PSLF.

Debt consolidation can negatively impact your credit score. Any debt consolidation method you use will have the creditor or lender pulling your credit score, leading to a hard inquiry on your credit report. This inquiry will decrease your credit score by a few points. However, this credit score decline is temporary.

Taking out a debt consolidation loan can help put you on a faster track to total payoff and may help you save money in interest by paying down the balance faster. This is especially true if you have significant credit card debt you carry from month to month.

You can rest assured that your credit record will not be negatively affected due to debt review. Your creditors will appreciate that you've taken control of your finances.

If a debt collector is seeking legal action, we can still contact them on your behalf and see if they're willing to take payments. There's nothing we can do to stop the legal action. They just want someone to contact them and tell them how much money the client can afford and set up payments.