Should I Do Debt Settlement or Get a Debt Consolidation Loan?

Steve Rhode
3 min readJan 26, 2022

Dear Steve,

I’m trying to decide if I should use a debt settlement company for a consolidation loan.

If you have an excellent payment history and now you’re deciding to settle those debts, would it be better to consolidate them and pay them off in full or get a settlement company to settle them? I can continue to make the payments; I would just like to free up some money.


Photo by John Barkiple on Unsplash


Dear John,

The answer is much more complex than you would assume for this simple appearing question.

The best answer for you hinges on a couple of key points:

Emotional Answer

It does not seem you are in financial trouble, but maybe wanting to free up additional money is an indication things might be starting to get spicy.

When people face financial stress, they begin to make decisions more based on emotion than logic and reason.

I get it. We are all human and victims of our emotions.

The allure of a debt settlement approach is what the marketing hype promises. The magic sales message is you will eliminate your debts for a lot less than you owe. That’s attractive. It is almost as financially sexy as you can get.

But reality can be starkly different. When you settle your debt, you will have to default on it. That will appear on your credit report for seven years. Once you default, collection pressure increases, and you could be sued over the debt.

Settling also has potential tax consequences as well. For a deeper dive into these issues read Debt Settlement Pros and Cons. My No BS Guide to Settling Your Debt.

Mathematical Answer

If you factor in the risks of debt settlement and assign a value to those risks, you can better compare the “true” cost of settling your debt.

With a debt consolidation loan, you will repay more money and pay much more interest, but it will not impact you in similar ways.

But what I’ve seen repeatedly are people who get debt consolidation loans only to run up the cards again because they needed credit to make ends meet each month.

Again, math helps make a logical decision.

Logical Answer

Your question is one of those that the best answer requires the skill of a skilled and competent debt coach like my friend Damon Day.

Your question is great but it indicates that there are alternatives you may not have considered.

For example, the best answer for an individual is often not based on this or that but in a customized combination of a little of this and a little of that based on goals and creditors.

Do You Have a Question You’d Like Steve to Answer? Click Here.

The best answer for you should be based on your age, goals, retirement savings strategy, the value you assign to good credit and avoiding collections, etc.

Best Answer

The best answer for you will be based on a well-rounded look at you as an individual and a solution based on experience and math and not emotion.

For this reason, I believe your specific situation would benefit from talking to an independent debt coach like Damon Day, but feel free to find anyone you think is similar. However, don’t confuse a salesperson of a debt settlement or debt consolidation company for an independent advisor that puts you first. Their job is to make the sale, not provide the best advice.

Damon and I talk daily and brainstorm about people’s situations that ask him for his opinion and guidance.

If you do decide to discuss this with Damon, after he looks at your situation, just tell Damon to discuss it with me if you’d like me to weigh in.

I’m happy to help.

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Originally published at on January 26, 2022.



Steve Rhode

Dog Rescue Pilot, Firefighter, Debt Coach, and a Nice Guy