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Should You Apply for Debt Consolidation Loan or a Debt Consolidation Program?

By: Craig Lebrau


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A debt consolidation loan can benefit consumers with good credit who would like to streamline the process of paying off two or more of their existing debts. With debt consolidation loans, consumers effectively combine two or more of their existing debts into one, which they pay off monthly, at a fixed interest rate.

But a debt consolidation loan is not right for everyone, and for these consumers there are alternatives, like debt consolidation programs (DCPs).

Both DCPs and debt consolidation loan consolidate a consumer’s debt and enables them to pay it off with one monthly payment. However, unlike debt consolidation loans, consumers don’t need to have good credit to qualify.

If you’d like to learn whether a debt consolidation loan is right for you, or whether a DCP would be a better fit, here’s a step-by-step guide.

Step 1: Ask Yourself Two Crucial Questions

The first step to figuring out whether you would benefit more from a debt consolidation loan or a DCP is to ask two crucial questions.

Before you ask these questions, however, make sure you qualify for a debt consolidation loan; not everyone does—for instance, consumers who have bad credit.

If you do qualify for a debt consolidation loan, the two questions you should ask yourself are:

  1. Will a debt consolidation loan have a lower interest rate than the average interest rate I’m already paying on my high-interest debts?
  2. Will a debt consolidation loan be enough to pay off my high-interest debts?

If the answer to both questions is yes, then it’s time to consider the pros and cons of taking out a debt consolidation loan.

If the answer to the first question is no, however, then a DCP might benefit you more.

With a DCP, you work one-on-one with a credit counsellor who negotiates directly with your creditors for reduced or zero interest rates. There’s no credit check required and no risk of ending up paying higher interest rates.

Step 2: Understand the Pros and Cons

There are pros and cons of debt consolidation loans. Whether the pros will outweigh the cons depends on your income, credit score, spending habits, personal and financial goals, and more.

Before you figure out how to get a debt consolidation loan, take a look at the pros and cons of debt consolidation. A debt consolidation loan may:

  1. Streamline debt payments
  2. Lower overall interest rate
  3. Expedite payoff
  4. Decrease risk of fiscal crises

Consumers who have several-high interest loans, good credit, and avoid unwise spending habits typically benefit the most from debt consolidation loans. Consumers who don’t do these things may face the cons of a debt consolidation loan. A debt consolidation loan may:

  1. Increase interest rate over time
  2. Raise your interest rates
  3. Add more monthly costs
  4. Encourage bad spending habits

DCPs have their own pros and cons, and whether they will benefit you depends most on their pros:

  1. One lower monthly payment
  2. Dramatically reducing or even dropping interest rate on unsecured debt
  3. Automatic payments to creditors
  4. Help from a certified credit counsellor

Consumers who benefit from DCPs typically pay off their consolidated debt within 24 to 48 months. A credit counsellor may also negotiate with a consumer’s bank so are issued a certified credit card while on the DCP, and an unsecured credit card after they’ve finished the DCP.

That means consumers must refrain from using credit, including credit cards, while they’re on the DCP. Whether that’s a pro or a con depends on a consumer’s spending habits and budget, among other factors.

Step 3: Apply for a Debt Consolidation Loan or a DCP

If a debt consolidation loan is right for you, the final step is to apply for one through a bank, credit union, or online lender. These issues debt consolidation loans in either one of two ways:

  • by depositing consolidation funds into your bank account, therefore making it your responsibility to pay off all the debts that you would like to consolidate with the funds, or
  • by using the consolidation funds to pay off the individual debts that you have already agreed to pay off.

If a DCP is the better option for you, however, you must apply through a non-profit credit counselling agency, where a credit counsellor will work with you one-on-one.

Published: November 8, 2021

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