It can be tough to know what to do when you're staring at a pile of credit card bills and you realize that the minimum monthly payments alone are eating up a large portion of your paycheck. But while this type of issue can be stressful, it's unfortunately not uncommon right now. Between the higher costs of essentials and the elevated interest rate environment, millions of Americans have been forced to turn to their credit cards to make ends meet and are now struggling under the weight of their high-rate credit card debt.

As a result, many are searching for ways to lighten their financial load, and while there are lots of options to choose from, two of the most effective routes for those with high credit card balances or multiple high-rate loans are debt forgiveness (also known as debt settlement) and debt consolidation. Each of these options promises relief, but in very different ways — and with vastly different consequences for your wallet and credit score.

Debt consolidation, for example, can simplify repayment and lower your interest rate, but it won't reduce your principal balance. Debt forgiveness, on the other hand, can slash the amount you owe, but it often comes with serious credit damage and other trade-offs. But which one could actually save you more? Below, we'll break down the costs, timeline and credit implications of both strategies to help you make the right move for your financial future.

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Debt forgiveness vs. debt consolidation: Which one could save you more?

Before we look at how much debt forgiveness and debt consolidation could save you, it's important to understand how each of these debt relief options works. Debt consolidation combines multiple debts into one new loan or payment plan. Instead of juggling several credit card payments, you get a single monthly payment, ideally at a lower interest rate. Common consolidation methods include:

• Personal loans, which currently average around 13% APR for borrowers with good credit
• Balance transfer credit cards offering promotional 0% rates
• Home equity loans or home equity lines of credit (HELOCs) for homeowners, which have rates that currently average about 8.3% for HELOCs and 8.4% for 10-year home equity loans

Debt forgiveness works completely differently. With this type of debt relief, you (or a debt relief company you hire) negotiate with creditors to try and get them to accept less than what you owe in return for a lump-sum payment. When successful, debt settlement typically leads to paying between 30% to 50% less than the original balance owed on the account. Here's how a settlement typically works:

• You stop making payments to creditors entirely
• Monthly payments are then made to the debt relief company and deposited into a separate account 
• That money accumulates, and the accumulated funds are used to make lump-sum settlement offers
• You also have to pay the debt relief company fees, which are generally between 15% to 25% of the enrolled debt

The catch: You must stop payments during negotiations, which damages your credit as accounts become delinquent. 

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Timeline and credit impact

Debt consolidation can happen relatively quickly, often within a few weeks if you qualify for a personal loan or balance transfer credit card. The payoff timeline depends on the terms you choose, but most people opt for loan terms between two and five years. This approach can actually help your credit score over time by lowering your credit utilization ratio and establishing a positive payment history.

Debt forgiveness is a much longer process, typically taking two to four years on average to complete. During this time, your credit accounts will likely be charged off as bad debt, and you may face collection calls and potential lawsuits. Your credit score will generally drop significantly and these negative marks will remain on your credit report for seven years.

Cost comparison 

Now let's look at an example of how the savings and costs would compare between your options if you had $25,000 in credit card debt at an average interest rate of 21%.

Option 1: Keep paying monthly payments

• Monthly payment (based on 3% of the balance): starting at $750 per month
• Time to pay off: 30 years
• Total interest paid: roughly $34,557
• Total paid: about $59,557

Option 2: Debt consolidation with a personal loan at 13% over four years

• Monthly payment: approximately $671
• Interest paid: $7,193
• Total paid: about $32,193
• Total savings vs. monthly payments: $27,364

Option 3: Debt forgiveness (assuming a 50% reduction and 22% company fees)

• Amount settled for: $12,500
• Settlement company fees: $5,500
• Total paid: approximately $18,000
• Total savings vs. monthly payments: $41,557

While debt forgiveness saves substantially more money upfront, it's important to understand that the credit damage could cost you thousands more in higher interest rates on future loans, insurance premiums and other financial products. So, the savings from debt forgiveness might disappear, at least in part, if you need to finance a car or home shortly after your debt has been settled.

The bottom line

While debt forgiveness can help you save substantially compared to debt consolidation, your decision typically shouldn't be based solely on which option saves the most money upfront. If you can qualify for debt consolidation and manage the monthly payments, this approach protects your credit while still providing meaningful savings compared to making just the monthly payments. However, if your debt load is truly unmanageable and you're already facing potential bankruptcy, debt forgiveness might be worth the credit damage to avoid more severe consequences.