Debt consolidation allows you to combine multiple debts into a new loan. You’ll have a single payment each month instead of multiple, which makes repayment easier. For many borrowers, it’s an easy way to save money if they qualify for a significantly lower interest rate compared to what they’re paying now.

However, if your financial situation changes and you realize that it’s not the right solution for you, can you cancel a debt consolidation program? The answer is yes, but depending on your contract, the process may be a little complex in some cases.

Can You Cancel Debt Consolidation?

Debt consolidation comes in many forms. You can combine your debts by taking out a debt consolidation loan, enrolling in a debt management plan (DMP), consolidating your federal student loans, or even outright reducing your debt, by entering into a debt settlement contract.

You can typically cancel debt consolidation in each of these situations, but the process can vary greatly. You’ll usually need to contact the debt relief company or loan provider, after reading your contract carefully, and submit your request to cancel. Once you exit your contract, you’ll once again have to deal with your creditors directly, on your own.

Reasons to Cancel a Debt Consolidation Program

There are several reasons why you may want to cancel a debt consolidation program, such as:

  • You’ve received a windfall, and you can pay off your debt.
  • You’ve decided the plan is not right for you.
  • The program’s fees are too high.
  • Your financial circumstances have changed, and you no longer need debt relief assistance.

How To Cancel a Debt Consolidation Program

The exact process to cancel a debt consolidation program will vary based on the consolidation company, type of program, and the terms of your agreement. Here’s the general process you’ll need to follow for each type.

Canceling a Non-Profit Debt Management Plan

  1. Read the terms of your debt management plan carefully to understand the consequences.
  2. Make sure you have an alternate plan in place (including a little extra money set aside) to ensure you’ll be able to resume making payments on your debts once you cancel the contract.
  3. Contact the nonprofit credit counseling agency as well as your creditors and request to cancel.
  4. You may be able to cancel in person, by email, or by phone.
  5. Check to see if there’s a penalty you need to pay for canceling the agreement (with most lenders, there will be a penalty or cancellation fee of some sort).
  6. Make a lump-sum payment or work out an alternate solution with your lenders.

Canceling a Debt Consolidation Loan

  1. If you’ve applied for a personal loan but haven’t received approval, contact the lender as soon as possible to cancel your application.
  2. Check to see if you can cancel the loan (usually HELOC or home equity loan) based on the “right of rescission” guaranteed by the Truth in Lending Act.
  3. If the loan has already been disbursed, you’ll need to check the specific terms and conditions of your loan agreement.
  4. Reach out to the lender and submit a formal loan cancellation request.
  5. Repay the disbursed amount, along with accrued interest and applicable fees.
  6. Get a confirmation of cancellation from the lender that states that your loan is successfully paid off and canceled.

Canceling Student Loan Debt Consolidation

  1. The method for canceling will depend on your application’s status.
  2. If the application hasn’t yet been sent to the consolidation servicer, you can log into StudentAid.gov and cancel your application.
  3. If the application is in draft status, you can edit the application.
  4. Once the application has been processed, you’ll need to contact the loan servicer by the given due date to cancel the application.

Canceling a Debt Settlement Contract

  1. Contact the settlement company directly and ask about the process you need to follow to cancel the contract before the end of the term.
  2. You’ll need to submit a Notice of Intent to Cancel to the settlement company as well as your lenders.
  3. Ask if there are any fees you need to pay to exit the contract (there typically will be with most for-profit debt settlement companies).
  4. Pay the required fees and get a refund for any deposits you’ve made in your settlement account.  The debt settlement company may give you a time frame of 5-7 business days or longer in order to process and return the money you’ve deposited so far (if any). 
  5. Contact your lenders to work out an alternate arrangement for the debts you owe.

Consequences of Canceling Debt Consolidation

Regardless of the type of consolidation you cancel, there are a few consequences that you need to consider.

  • You’ll still need to address your debt problems.
  • You’ll need to find alternate ways to repay the debt you owe.
  • Any reduced interest rates or waived late fees you receive through a DMP will be canceled, and the original interest rates and late fees reinstated on your account(s).  
  • You may have to pay termination fees or additional charges to cancel your contract.
  • Your credit score may be negatively impacted due to missed payments if you can’t keep up with them after you cancel debt consolidation.

Things To Consider Before Canceling Debt Consolidation

You can cancel debt consolidation, but you’ll still need a plan to manage your debt. Here are a few things to consider before you get in touch with your credit counselor, loan servicer, or debt settlement company:

  • You’ll need a better money management plan to ensure you won’t rack up more debt and end up in a worse situation.
  • Consider your reason for canceling and explore solutions that may work for you without having to cancel the contract.
  • Think about how you’ll manage your debt once you cancel your debt consolidation.
  • Check if there are any cancellation fees you’ll need to pay to see how much they are. If the fees are excessively high, you may decide it’s not worth canceling.
  • Ensure you’ll be able to afford the monthly payments once the lender concessions that have been negotiated by your DMP organization are canceled and your late fees and your original interest rate are reinstated.
  • Check to see how long it will take you to become debt-free with other debt solutions.

Should You Cancel Your Debt Consolidation?

There may be many reasons why you want to cancel your debt consolidation. Whether you’re thinking about canceling because you have enough to repay your debts or because the program is no longer working for you, it’s important to consider the consequences and the costs of doing so.

Most importantly, you’ll need to have a plan for how you’ll repay your debt before you cancel your contract. You’ll need to deal with credit card companies and collection agencies directly and may start receiving debt collection calls, which may add to your stress. If you have a lot of unsecured debts, you may want to consult a bankruptcy attorney to see if Chapter 7 or Chapter 13 bankruptcy is right for you.