| Consolidation | Settlement | |
|---|---|---|
| Basic idea | Use a new loan or transfer to combine balances. | Attempt to resolve balances for less than owed. |
| Creditor payoff | Existing creditors are generally paid from new credit. | A creditor must agree to each negotiated result. |
| Main risks | Fees, teaser rates, longer terms, new debt, collateral risk. | Added fees and interest, collections, lawsuits, credit damage, unsuccessful negotiations. |
| Credit needs | Competitive rates may require stronger credit. | Suitability depends on hardship, eligible debt, cash flow, and provider terms. |
When a lower payment costs more
A consolidation payment may fall because the term is longer. Compare APR, origination and transfer fees, total repayment, variable-rate changes, and whether any property secures the new loan.
Questions before taking new credit
- Is the interest rate fixed, promotional, or variable?
- What is the total cost through the final payment?
- Will using cards again recreate the balances?
- Is a home or other asset at risk?
CFPB guidance: fixing the cause of the debt and building a workable budget matter even when a new product simplifies the payment.