Debt consolidation companies: who does what
Three kinds of companies sell debt consolidation: lenders, nonprofit credit counselors and debt relief firms. What each one does, who oversees it and what it costs.
Of the three kinds of debt consolidation companies, only lenders and nonprofit counselors earn your trust. Federal law caps credit union loans at 18% (NCUA), so a federal credit union cannot charge you more than that.
The first thing to do is call a specialist. Here are the options they walk you through, and the ones to turn down.
Three kinds of debt consolidation companies
Each type does a different job and answers to a different regulator. Each one also charges you in a different way.
A company name with the word “consolidation” in it tells you nothing. A lender, a nonprofit and a settlement firm all use that word.
| Kind of company | What it does | Who oversees it | Cost |
|---|---|---|---|
| Lender (bank, credit union, online) | Gives you one loan that pays off the others | State regulator and the CFPB; federal credit unions capped at 18% by the NCUA | Interest, plus any origination fee |
| Nonprofit credit counselor | Sets up a debt management plan: you pay them, they pay the cards | DOJ-approved list and state licensing | Small setup and monthly fee; the plan runs 48 months or more |
| Debt relief or settlement company | Tries to pay less than you owe, after you stop paying | FTC Telemarketing Sales Rule and state law | A share of the debt, plus late fees while you stop paying |
Lenders
Banks, credit unions and online firms make one loan that pays off your cards. They answer to state banking departments and the CFPB.
Complaints against any of them show up by name in the CFPB Consumer Complaint Database. The specialist on our line checks each name with you.
Federal law caps credit union loans at 18% (NCUA). Call and we compare a credit union loan with your cards. The 16 lenders we reviewed are on our best loans page.
Nonprofit counselors
An agency like this builds a budget with you first. If it fits, the agency sets up a debt management plan.
Your card rates go down, and you make one payment to the agency. The plan takes 48 months or more (FTC), so pick a company you can trust for that long.
The Department of Justice keeps a list of approved agencies by state. The specialist walks you through a debt management plan and how to judge the agency behind it.
Relief companies
Settlement firms ask you to stop paying your cards. You put money in an account with them while they bargain with your card companies.
The CFPB lists the warning signs. Stay away from a firm that charges before it settles anything. Stay away from one that promises a result or tells you to stop talking to your creditors.
Their fee is a share of your debt, and they tell you the amount only after you ask. Since February 15, 2025, California requires debt settlement companies to be licensed.
What each costs
A lender charges interest and sometimes a fee. On $22,000 over four years at the 11.9% bank average, the payment is $578 a month (Federal Reserve G.19).
That means one fixed payment and a set end date. Call and the specialist runs the same numbers on your own cards.
A nonprofit charges a small setup fee and a monthly fee. State law caps those fees.
A relief company takes a share of your debt. You also pay for months of missed payments on your credit.
Settlement is meant to help you avoid bankruptcy. Bankruptcy stays on your report for 10 years (FTC).
The ones to avoid
An FTC alert from March 2026 lists the warning signs. Watch for fees before any debt is settled.
Watch for a promise to make your debt disappear. Watch for advice to stop talking to your creditors, or a claim to be a government program.
In September 2025, the FTC acted against two men who ran an illegal student loan debt relief operation. Both are now permanently banned from the debt relief industry.
Finding one near you
For a loan, the specialist finds a credit union to join. For counseling, the specialist goes through the Department of Justice list of approved agencies by state.
A “near me” search shows the companies that spend the most on ads. That is not the same as the list of agencies you can trust.
Related topics
- Loan vs balance transfer
- Does it hurt your credit?
- Home equity loan or HELOC
- Debt consolidation loan calculator
Before you borrow
Is it worth it to use a debt consolidation company?
A lender or a nonprofit counselor is worth it once their name checks out. Call and the specialist checks them against the CFPB database and the Department of Justice list. A relief company is rarely worth it, and only when you are already far behind.
Who is the most reputable debt consolidation company?
No single company is the answer. The safest choices are a credit union you belong to and a nonprofit agency on the Department of Justice list. Call before you return any offer, and we check each name with you.
Do consolidation loans hurt your credit score?
Your score takes a small dip for the credit check and the new account. It then usually goes up as your cards drop to zero. Settlement hurts far more because it starts with missed payments.
Does Dave Ramsey recommend debt consolidation companies?
He warns against settlement companies. He also warns against loans that only move debt from one place to another. He speaks more kindly of nonprofit counseling.
Check every caller before you answer
Companies keep calling with offers, and only lenders and nonprofit counselors deserve your trust. A nonprofit plan runs 48 months or more, so the wrong pick costs you years. Call now and a specialist goes through every company that called you, for free.