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Debt consolidation involves many financial risks if you have bad credit, which is why people often select debt settlement to solve their debt problems. Debt consolidation requires a credit check prior to you obtaining a loan, while debt settlement allows you to enroll in the program without a credit check. Debt consolidation involves you obtaining a loan from a financial institution, typically a bank, credit union or savings and loan association. Once you receive the debt consolidation loan, you direct the funds toward paying off all your high-interest debts. However, your loan lender determines your interest rate and payment terms based on your credit history. If you have bad credit, the lender may refuse the loan or offer it at a significantly high interest rate, making the loan an expensive option to eliminate debt. Instead of enduring the approval process for a debt consolidation loan, you can enroll in a debt settlement program to pay off debts. The debt settlement company allows its clients to enroll without a credit check, and you can save more money than using a debt consolidation loan. Debt settlement companies work on your behalf to relieve debt problems by entering into negotiations with your creditors to reduce the amount of owed debt. With debt settlement, you pay only 40 to 60 percent of your original debt principal, and since you pay less toward each debt, you become debt free in a short time. The benefits of debt settlement outweigh those of debt consolidation. You save more money, reduce debt quicker and avoid a credit check with debt settlement. 