Weighing your debt consolidation options

I have credit card debt totaling around 15K. I would like to consolidate it by using a loan. Is it best to go through a bank, a credit counselor, or to leave it as is on separate cards? –Heather

Hi Heather –

It’s pretty much impossible for me to tell you which option is the best for you without knowing more about your situation, and even then it really comes down to your preferences and goals. Hopefully, by understanding the options you’re considering you’ll be able to decide which course of action makes the most sense for you.

Consolidation loan

A debt consolidation loan is a new loan where the funds are used for the purpose of paying off existing unsecured debts. Traditionally, this comes in the form of an unsecured loan used to pay off one or more credit card debts. You can also refinance a mortgage or add a second mortgage on your home, using the new funds to pay off those unsecured debts.


  • If you can get a loan with a low interest rate, you can potentially save a good deal of money using this method.
  • You also consolidate payments this way – just one payment a month, instead of individual payments for each account.


  • Most lenders will require you to close the accounts being paid off by the loan. This may potentially have a negative impact on your credit score as the age of your active accounts decreases.
  • It’s dangerous to convert unsecured debt (credit cards) into secured debt (mortgage). If you refinance your home with an eye toward reducing credit card debt, but then find yourself struggling to manage the new mortgage payment, you could put your house at risk.
  • There may be fees associated with the loan.

FINAL VERDICT: A debt consolidation loan can be a great option if you’re overburdened with credit card debt, but have good credit. Just be sure to shop around for the best deal and don’t be shocked if your credit score drops a bit after your old accounts are closed.

Debt Management Plan

A Debt Management Plan, or DMP, is usually provided and serviced by a credit counseling agency. Following an assessment of your financial situation, you may be offered the opportunity to consolidate your unsecured debts into a structured repayment program. This is not a loan. You would make a single payment to the credit counseling agency, which would then disburse the funds to your creditors on your behalf.


  • You receive ongoing counseling and education on managing and eliminating debt.
  • Most creditors will offer significantly reduced interest rates for accounts being paid through a DMP.
  • Clients only make one payment each month.
  • DMPs are designed to fit into your existing budget.
  • Many creditors agree to bring delinquent accounts current after a set number of DMP payments.


  • As with consolidation loans, the accounts included on a DMP will be closed, which could have an adverse impact on your credit score.
  • Secured debts are generally not allowed on DMPs.

FINAL VERDICT: A Debt Management Plan is a good solution for consumers who have begun to miss payments due to an unbalanced budget, those looking to rebuild their credit, and anyone attempting to recover from a financial crisis.

You also suggested leaving your credit cards open and paying them as they are. That’s the best option if your priority is your credit score. If you’re struggling to manage the debt or don’t feel like you’re making much progress, consider contacting the creditor first to see if they can potentially lower the interest rate. If that doesn’t work then maybe move on to one of the consolidation options listed above.

Thanks for the question!

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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