Debt Consolidation Programs

Credit counseling in these plans could help with overwhelming debt

Woman sitting on the floor with head in hand surrounded by stacks of bills and receipts.

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When you're overwhelmed by debt, having a hard time making payments and keeping track of everything, a debt consolidation program may offer relief. But before you sign up, learn how these arrangements work, and evaluate if you really need to use one.

What Is a Debt Consolidation Program?

A debt consolidation program is typically a service that involves combining multiple loans into a single payment. In most cases, a “program” is a service or a combination of services offered by a credit counseling company or organization: You might make a single payment to the company, and they forward your payments to creditors.


The terms can get confusing. A debt consolidation loan (as opposed to a program) is a brand new loan that you use to pay off other loans. Presumably, you get a loan with better terms, and which makes it easier to pay off debt.

Loans and programs have similar results, although they work very differently:

  • You make a single payment instead of multiple payments.
  • You probably have a lower monthly payment than you had before.
  • You might end up taking longer to pay off your debt.
  • You ideally get a lower interest rate, although you could still spend more on interest overall.

Again, the main difference between a debt consolidation loan and a debt consolidation program is that a loan results in shifting your debt to a new loan. A program, which we’ll explain below, is a service to help pay off your debts where they are. Sometimes these programs are known as debt management plans.

If you have good credit and sufficient income, a debt consolidation loan might be your best option. Compare fees you’ll pay for a loan or a program, and decide what’s best.

How It Works

A debt consolidation program is a service to help you manage your debt. With the help of a nonprofit credit counseling agency or for-profit company, you set up a system to eliminate debt within three to five years.

Start With Counseling

The first step of a debt management program is counseling. You speak with staff at the service provider to determine (together) whether or not they can help. It is a good opportunity to learn about your debt—and to ask about fees and how the organization works. If you get a bad feeling, try a different provider.

You May Pay Fees

Even though some organizations are nonprofits, you may have to pay a setup fee and monthly fees. Compare fees among organizations before you pick one. When you’re struggling financially, those dollars matter.

Unsecured Loans Only

Debt consolidation programs are for unsecured debt only. In other words, the loan can’t be secured by collateral. For example, home loans and auto loans would generally not be eligible. Unsecured debts include loans such as credit cards, personal loans, and some student loans.

You Keep Your Accounts

With a debt management program, your loans will continue to exist where they are now—you’re not getting a new loan or moving the debt around. Still, you might make one monthly payment to your service provider, and the funds will then be distributed to your various creditors. Your service provider communicates with your creditors during the setup process and as the program progresses.

No New Debt

The goal is to eliminate debt, so taking on more debt is not part of the deal. You may need to close most of your credit cards and agree not to take on new loans while you’re paying off the old loans.

Lower Payments?

Ideally, you’ll pay less on your loans each month, but more of that money goes toward debt reduction. To make that work, your interest rates may get cut, which means less money goes toward interest charges. You might even see penalty fees reduced. Sound too good to be true? There’s a tradeoff, of course (not to mention the fees you pay to your service provider).

Effect on Credit

Enrolling in a debt management program should not lower your credit scores. However, the fact that you're in a program may appear in your credit reports. Also, the steps you take as part of the program can also have positive or negative effects on your credit.

Choosing a Program

There are numerous businesses and organizations that are eager to help you manage debt. How do you know which one is best?

Ask around, read reviews, and research service providers. Start with organizations that have a strong reputation. The National Foundation for Credit Counseling (NFCC), a nonprofit organization, certifies counselors and sets specific requirements for member organizations.


NFCC is a good place to start, but there may be other good options.

Remember that you might not even need a debt management program: You can complete many of the same things yourself. Instead of paying a fee, you’ll spend time and energy—but you might have more time and energy than money right now. Contact your creditors to see if any relief is available. If you’re not having any luck, or if you want to enlist an experienced helper, the next step is to speak with a credit counselor.

If your situation and ability to pay off a number of credit cards is more complicated, you should consider seeking assistance from a debt relief program. Pursuing debt settlement is a last resort because it involves stopping payments and working with a firm that holds that money in escrow while negotiating with your creditors to reach a settlement, which can take up to four years. Withholding payments from your creditors can seriously damage your credit score.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Experian. "How Does a Debt Consolidation Program Work?"

  2. Federal Trade Commission. "Getting Out of Debt."

  3. Experian. "A Debt Management Plan: Is It Right for You?"

  4. National Foundation for Credit Counseling. "Non Profit Debt Management Plans and Programs."

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