Should You Consolidate Your Debt?

You’re juggling three credit cards, a personal loan, and maybe even a store card or two. The due dates are scattered across the month, interest rates are climbing, and keeping up is starting to feel like a full-time job. Sound familiar?

If so, you’ve probably heard about debt consolidation—but is it really the right move?

This guide will walk you through everything you need to know about consolidating your debt, including how it works, the pros and cons, and how to avoid common traps. You’ll even get a checklist to help decide if it’s the right step for your financial journey.

📌 Related: How to Get Out of Debt: A Step-by-Step Guide

Debt consolidation means rolling multiple debts into a single new one—usually with a better interest rate or more manageable payment schedule. It’s a strategy many people use to simplify repayment and save money on interest.

There are three main ways to consolidate debt:

• Personal Loan – You take out a new loan to pay off your existing debts and repay one fixed monthly payment.
• Balance Transfer Credit Card – You move multiple credit card balances onto one card with a low or 0% introductory APR.
• Debt Management Plan (DMP) – Offered by nonprofit credit counselors, these plans bundle your debt with fixed repayment terms.

🔗 Helpful Tool: Debt-to-Income Ratio Calculator

Simplified Payments
Instead of juggling five different payments, you only make one.

Lower Interest Rates
If you qualify for a good rate, especially with strong credit, you could pay less in the long run.

Set Payoff Timeline
Personal loans usually come with fixed terms (e.g., 36 months), which can give you a clear debt-free date.

May Improve Your Credit Score
As you pay off your original debts and make on-time payments, your credit utilization may improve.

Consider options from trusted lenders like SoFi, Upstart, or LendingTree. Many offer pre-qualification with soft credit checks.

Not a Cure-All
It doesn’t solve overspending or a lack of budgeting.

You Need Decent Credit
Lower rates are typically reserved for borrowers with good credit (650+).

Balance Transfer Pitfalls
Intro APRs expire fast, and missing a payment could trigger high penalty rates.

Fees May Apply
Balance transfers often include a 3-5% fee. Personal loans may charge origination fees.

⚠️ Watch Out: Avoid companies promising “guaranteed” approvals or charging high upfront fees. These could be debt relief scams.

Ask yourself the following questions:

• Do you have multiple high-interest debts?
• Can you commit to not running balances back up?
• Is your credit score 650+?
• Do you have stable income to make a fixed payment?

If you answered yes to most of these, debt consolidation could be a smart move.

✅ Download: Use our Savings Goal Calculator to see how much you could save with a lower interest rate.

1. Review Your Debts
   List out each debt, balance, interest rate, and minimum payment.
2. Check Your Credit Score
   Use free tools like Credit Karma or your bank’s app to see where you stand.
3. Compare Options
   Look at personal loans, balance transfer cards, or nonprofit credit counselors.
4. Apply & Get Approved
   Many lenders offer soft credit checks during pre-approval. Choose the best terms.
5. Pay Off Existing Debts
   Use the funds to pay everything off—don’t spend them elsewhere.
6. Stick to the New Plan
   Make on-time payments and avoid creating new debt.

🔄 Debt Snowball Method – Pay off the smallest debt first to build momentum. Read more

🔽 Debt Avalanche Method – Focus on highest-interest debt to save more over time. Read more

💬 Debt Counseling – A certified nonprofit can help you build a plan without new loans.

🚫 Leaving Credit Lines Open
It’s usually best to keep old accounts open (unless there’s an annual fee), but don’t use them again.

🚫 Not Addressing Spending Habits
Debt consolidation without a budget is like painting over a leak. The problem will return.

🚫 Falling for Scams
Legitimate lenders don’t charge upfront fees for “guaranteed” approval. Research any offer.

So, should you consolidate your debt?
It depends. Debt consolidation can be a powerful tool to simplify your finances, reduce stress, and save money—but only if you’re ready to stop the debt cycle and commit to repayment.

If you’re feeling overwhelmed, don’t stress. Start small: calculate your debt-to-income ratio, explore your options, and move forward with a plan that fits your life.

💬 Need help organizing your debt and setting financial goals? Bookmark this page and check back soon for our upcoming debt consolidation comparison tools!