If you’re struggling with credit card debt or other types of debt, you might be wondering: What’s the best way to get out? You’ve probably heard terms like debt consolidation, refinancing, and debt settlement, but what do they actually mean - and are they right for you?
In this guide, we’ll break down each option, including the pros, cons, fees, and red flags, so you can make the right choice for you.
Debt consolidation means combining multiple debts (like credit cards or personal loans) into one new loan. This new loan usually has a lower interest rate or lower monthly payment.
Let’s say you have three credit cards:
Card A: $3,000 at 25% interest
Card B: $2,000 at 20% interest
Card C: $5,000 at 22% interest
If you qualify for a $10,000 debt consolidation loan at 12% interest, you could replace all three cards with one loan. Now you have just one monthly payment and a lower overall interest rate.
One easy payment per month
Lower interest = save money
May help you improve credit score over time
Typically come with origination fees (usually 1%–5% of the loan)
Paying less per month could mean you stay in debt longer
Need a decent credit score to get a good rate
Watch out for high fees or lenders promising “instant approval”
Avoid companies that ask for payment upfront before giving you a loan
Note: It can be tempting to take a larger consolidation loan than you need and use the extra funds for other purposes. This just increases your overall debt burden!
Refinancing means replacing an existing loan with a new one - usually to get a better interest rate or lower monthly payment. You can refinance credit cards (through balance transfers), auto loans, student loans, and mortgages. Consolidation and refinancing are very similar, except refinancing is 1-to-1 instead of many-to-1.
Your mortgage is at 5.5% rate. Maybe that was good at the time, but now the market average is lower or your credit score is higher. You apply for a new mortgage and receive a rate of 4.490%. Now, you pay less interest, which can save you hundreds or even thousands of dollars over time.
Or, you transfer a $5,000 credit card balance to a 0% balance transfer card with an 12-month intro period. That gives you a year without interest, which can save you a lot of money! To maximize the benefits of a balance transfer, pay off the card before the intro period ends.
Lower interest = big savings
Can lower your monthly payments
May help you pay off debt faster
Some balance transfers charge a 3%–5% fee
If your credit score is low, you may not get approved
Rates could go up later (especially with variable-rate loans)
Avoid cards that offer 0% for a very short promo period. Once you account for fees, you may not save very much or at all.
Debt settlement is when you or a company negotiates with creditors to let you pay less than you owe. It can sound like a miracle - but it’s risky and will hurt your credit.
You owe $20,000 in credit card debt but can’t pay it off. You work with a debt settlement company that negotiates with your creditors. After months of not paying (which damages your credit), the creditors agree to settle for $12,000. You pay that, plus a $4,000 fee to the settlement company, and the debts are closed.
You may pay less than you owe
Can help avoid bankruptcy, especially if your debt is well beyond what you could afford to pay
Can damage your credit score for years
Debt settlement companies charge 15%–25% of the debt amount
Lenders don't have to agree to settle with you
Never pay upfront for settlement services (it’s illegal!)
Avoid companies that promise they can “erase” your debt
Be careful - they may tell you to stop paying, which can lead to collections or lawsuits
Debt settlement can be used as a last-resort if your debt situation is really out-of-control. If you consider settling, be sure to work a nonprofit credit counselor. Know that this process can take several years.
💡Tip: You can also try calling your lenders on your own to ask if they have programs for customers who are struggling. Remember that they want you to succeed at paying back your loan - there's no shame in asking for help.
| Goal | Best Option |
|---|---|
| Lower interest & simplify | Debt Consolidation |
| Better rate on one loan | Refinancing |
| Can’t afford full payoff | Debt Settlement (last resort) |
If you’re still making payments and your credit score isn’t too low, debt consolidation or refinancing can be a smart move. But if you’re way behind and can’t catch up, settlement might help you avoid bankruptcy - just be careful who you trust.
Debt consolidation or refinancing can be helpful tools to help you manage you're debt, but you need a good credit score to qualify. And they don't always save you as much as you hope once you factor in the fees and longer repayment timelines.
The unpopular truth is: for many people, the best way to get out of debt is to pay it off. That's it.
You can use smart strategies - like the avalanche method and paying over the minimum - to maximize your savings. But ultimately, there's no magic trick to un-spend this money. Be wary of debt programs that sound too good to be true. They probably are.
The Payoff Genius app can help you create an optimized plan to pay off your debt the smart way and can help you see if refinancing or consolidation could be right for you. Either way, doing this type of research is a great start. You can do this!