Debt consolidation loans vs. debt consolidation programs: Which is better?
As inflation sends the prices of consumer goods and services higher, the Federal Reserve's response to that inflation has pushed interest rates up. That's a painful reality for many who carry balances on credit cards and other debts. After all, credit card minimum payments tend to rise alongside interest rates. And, when you have to find a way to squeeze higher prices for goods and services into your budget, it can be difficult to make extra room for higher payments too.
So, you may be looking into your debt relief options.
Debt consolidation loans and debt consolidation programs are two popular options to consider. And while their names suggest they're the same thing, there are distinct differences to consider before you choose one over the other. So, which is better for you? That's what we will break down below.
Compare your debt relief options to find the best solution now.
Debt consolidation loans vs. debt consolidation programs: Which is better?
Here's a quick rundown of the differences between debt consolidation programs and debt consolidation loans:
- Debt consolidation programs: When you enroll in a debt consolidation program, you roll all of your credit card debts into one lump-sum loan that is typically issued by a partner lender of the debt relief service you're working with. This loan typically has a lower interest rate than the rates tied to your credit cards, and your monthly payments are made directly to the debt relief company until your loan is paid off.
- Debt consolidation loans: Debt consolidation loans are a type of loan that's designed to pay off high interest rate debt. These loans presumably have a lower interest rate than you're currently paying. And, they simplify the payment process by consolidating multiple credit card payments into one monthly loan payment.
So, which is better?
Neither of these options is going to be perfect for everyone who comes across it. There are times when debt consolidation programs are better and times when debt consolidation loans are better.
Chat with an expert about your debt relief options today.
When debt consolidation programs are better
Debt consolidation programs are typically better than debt consolidation loans when you're unable to work directly with a bank or credit union to borrow the money you need to consolidate your debt.
For example, because debt relief services specialize in working with people who are facing debt issues, the lending parameters may be slightly more flexible than what you'd get with a traditional lender. So, you may be able to qualify with a slightly higher debt-to-income ratio or a slightly lower credit score, though it will depend on a range of factors.
A debt consolidation program can also make more sense if you want to compare the options offered to you by multiple lenders, as most debt relief services will work with multiple partners to issue loans through their debt consolidation programs.
When debt consolidation loans are better
Debt consolidation loans may be your better option if you're not having a hard time making your credit card payments and you have a strong credit score, but you want to work with a specific lender to borrow money to consolidate your debt. You may also get better terms or rates than you would by taking this route if you have a strong credit score and borrower profile. That lower interest rate could save you time and money in the process of paying your debts off.
The bottom line
There's no one-size-fits-all solution to credit card debt. Debt consolidation loans and programs are both effective ways to eliminate high interest debt. But, each option may work better under different circumstances. In either case, get in touch with a debt relief expert now to start putting high interest debt behind you.
This story has been updated to clarify the difference between debt management and debt consolidation programs.
