Education Center

The Pros & Cons of Your Debt Solution

Weighing your options for debt relief.

Debt solution pros and cons

Debt solutions are not one-size-fits-all – and that’s a good thing. If they were then you’d need a very specific set of circumstances to get out of debt. Instead, you have a wide-range of options available depending on your situation. Of course, all of these options have some upsides, but they all have some potential downsides as well.

So when you choose a debt solution, it’s about maximizing the good and minimizing any potential negatives that your solution may bring. The information can help you do exactly that. If you still have questions call us to connect with the right professionals for your needs or complete the form to the right to request help now.

Credit card balance transfer pros and cons

The good side:

    The good side

  • You can do it yourself so you don’t have to ask someone else for help.
  • There’s no credit damage if you keep up with the payments.
  • You can get 0% APR applied to your debt for up to 24 months, depending on your credit score.
  • All of your credit card accounts remain open.

The bad side:

  • There are almost always significant balance transfer fees on each transfer made.
  • The bad side

  • If you don’t get a new card, balance transfer APR tends to be high on existing accounts.
  • You can’t qualify for a new balance transfer credit card without a good credit score.
  • You can only transfer other credit card balances, so it doesn’t allow you to consolidate other unsecured debts like payday loans and unpaid medical bills.
  • Since your other cards are zeroed out, it can be tempting to start spending on credit again – you dig yourself into a deeper hole instead of getting out of debt.

Personal consolidation loan pros and cons

The good side:

  • It’s do-it-yourself so you’re not forced to lay your problems for someone else.
  • Halo Dollar

  • You can take the money you get from the loan and use it to pay off whatever you want.
  • There’s no credit damage if you keep up with the payments.
  • Your credit card accounts stay open and usable.
  • Depending on your lender (e.g. if you use a credit union) you may be able to qualify for the low interest rate you need even with fair-to-good credit.
  • Since you get money to pay off debt, you can even use it to pay off debts that are already in charge-off status with a collector and unable to be consolidated other ways.

The bad side:

  • Even with perfect credit, you can’t eliminate interest charges completely (which is possible with other options).
  • The bad side

  • Since your balances are cleared, it can be tempting to start charging before you actually pay off the debt – making your unstable situation with debt even worse.
  • You can’t use this option if you have bad credit.
  • Depending on your credit score, you may not get approved for a large enough loan to eliminate all of your debts.

Debt management program pros and cons

The good side:

  • This is the only option to consolidate that can work for people with bad credit.
  • Halo Dollar

  • Since a credit counselor acts on your behalf to negotiate with creditors, they can reduce – or eliminate – your interest rates regardless of your relationship with that creditor.
  • You can consolidate various types of unsecured debt, including medical bills and even some payday loans (particularly if you applied online).
  • You get budgeting and debt management assistance so you can avoid this situation in the future.
  • If you keep up with the payments, there’s little opportunity for credit damage – in fact, many times people see their credit improve upon completion.
  • While enrolled in the program, you can still apply for secured credit like a mortgage or auto loan, so you don’t have to put your life on hold.

The bad side:

  • All of your credit card accounts included in the program will be frozen, so you can’t use them.
  • The bad side

  • You also can’t apply for new unsecured credit (other credit cards) while enrolled.
  • You’re relying on someone else to help solve your problem, so if you don’t pick a reputable company or correspond effectively it could affect your credit and outlook.
  • If you don’t stick to your payments you can be kicked out of your program, at which point you’d be on the hook at your original interest rates with any penalties that were removed.
  • You can’t consolidate debts that are already in collections or charge-off status.

Debt settlement pros and cons

The good side:

  • You can settle debts for less than the full amount owed.
  • Halo Dollar

  • You can eliminate debts that are already in charge-off status and even debts with a collector.
  • You protect your assets from being potentially liquidated during bankruptcy.
  • With new regulations, you shouldn’t pay any fees until at least one debt has been successfully settled.

The bad side:

  • There will be a 7-year negative remark on your credit report for every debt settled (clock starts seven years from the date of discharge).
  • The bad side

  • There are a lot of disreputable companies still scamming people with false promises of settlement for pennies on the dollar, so it can be hard to find a reputable program provider.
  • If your debts are settled, the fees can be high.
  • The program often involves ceasing monthly payments to your creditors, but they’re under no obligation to accept your settlement offer – so you can wind up stuck if your offer isn’t accepted.
  • Settled debts look bad to lenders, so it can make it harder to get approved for loans and new lines of credit.

Comparing debt solutions side by side

Still don’t know which debt solution is the right choice for you? The chart below can help you compare all four solutions that would keep you out of bankruptcy side by side. Note that in the chart below, we’re assuming that everything goes right with each of these options (i.e. you don’t miss any payments, you don’t get scammed, etc.)

Credit Card Balance Transfer Personal Debt Consolidation Loan Debt Management Program Debt Settlement Program
Do-it-yourself Yes Yes No No
APR As low as 0% for up to 24 months Usually less than 10% APR Typically between 0% and 11% (negotiated by credit counselor) n/a
Monthly Payments Yes (consolidated into one bill) Yes (consolidated into one bill) Yes (consolidated into one bill) No
Fees Yes (for each balance transferred) No Yes (low monthly maintenance based on your budget) Yes (higher fees based on total debt owed)
Accounts closed or frozen? No No Frozen during enrollment Closed (discharged)
Can apply for new loans / credit lines during payoff? Yes (loans and credit cards) Yes (loans and credit cards) Secured loans okay (e.g. mortgage); no credit cards Approval on new credit is unlikely
Credit damage No No No Yes