What Is Debt Consolidation, and Should I Consolidate?

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What is Debt Consolidation? and do I need to consolidate?
Debt consolidation rolls multiple debts into a single payment. It is a great idea if you have an interest rate that is low enough.
Written by Amrita Jayakumar Writer The Washington Post Amrita Jayakumar is a former special assignments writer for NerdWallet. She also published a syndicated article on millennials and money, and covered personal loans and consumer credit and debt. Previously, she was a reporter at The Washington Post. Her work has appeared in newspapers such as the Miami Herald and USAToday. Amrita holds a master's degree in journalism from University of Missouri. University ofMissouri.





Nov 30, 2022


Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years with The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Her previous experience includes editing copy and news for a variety of Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communications and journalism in Iowa's University of Iowa.







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Debt consolidation consolidates several debts, usually high-interest debt such as credit card balances and other debts, into one payment. It could be an ideal option for you if you can find a lower rate of interest. It will also help reduce your total debt and reorganize it so you are able to pay it off faster.
If you're facing a manageable amount of debt and want to organize multiple bills with different interest rates, payments and due dates consolidating debt is a sound approach you can tackle by yourself.
Important takeaways
How to consolidate your debt
There are two primary ways to consolidate debt each of which consolidates your debt repayments into one bill per month.
Take a : Convert all of your debts to this card and pay the balance completely during the promotional period. You'll likely require excellent or good credit (690 or greater) to qualify.
Choose a fixed rate use the funds from the loan to pay off the debt, and then repay the loan by installments throughout a predetermined time. You may be eligible for an loan even if you have poor or fair credit (689 or below) However, borrowers with higher scores will likely be able to get the best rates.

Two other options to consolidate debt is using a credit card or . However, these two options come with risk -- to your home or your retirement. Whatever you decide the most suitable option for you depends the credit scores and profile and also your .
>> MORE:
Debt consolidation calculator
Use the calculator below to determine whether it makes sense for you to consolidate.
Debt consolidation can be an effective strategy
The success of a consolidation strategy depends on the following elements:
Your monthly payments to debt (including your rent or mortgage) do not exceed 50 percent of your gross monthly income.
Your credit is good enough to qualify for credit cards that have a 0% interest period or low-interest loan for debt consolidation loan.
Your cash flow consistently covers the payments towards your credit card.
If you choose the consolidation loan and you decide to repay it, you can pay it back in just five years.

Here's a scenario when consolidation makes sense: Say that you own four credit cards with interest rates that range from 18.99% to 24.99 percent. You always make your payments on time, so your credit is good. You may be eligible for an unsecured debt consolidation loan at 7% -an incredibly low interest rate.
For many people, consolidation reveals a light at the other end. If you take an loan with a term of three years, you know it will be paid back in three years if you make your payments on time and are careful with your spending. In contrast, the minimum payment on credit cards can mean months or years before they're paid off and you'll be paying higher interest rates than the original principal.
Readers may also have questions.
Is it a good idea to consolidate credit cards?

Consolidate your debt if you can get a loan with better terms or it will help you make payments on time. Make sure that this consolidating is part of bigger plan to get out of debt , and that you don't rack over new balances on the credit cards you've consolidated. Learn more about .




What is an debt consolidating loan work?

A personal loan allows you to pay your debts yourself or use an institution that pays directly towards your debtors. Find out the steps to .




Do debt consolidation loans hurt your credit?

Consolidation of debt can improve your credit if you make on-time payments or consolidating your balances on credit cards. Your credit may be hurt in the event that you rack up debt on your credit cards shut down all or the majority of your cards or fail to make a payment on the debt consolidation loan. Learn more about .







When debt consolidation doesn't make sense it, then don't do it.
Consolidation isn't a silver bullet for debt problems. It can't fix the consumption habits that cause debt in the beginning. Also, it's not the best solution when you're not in any chance of paying it off by making smaller payments.
If your debt load is minimal -- you could pay it off within six months or a year at the current rate and you'd save only the amount you'd save by consolidating, don't bother.
Try a do-it-yourself debt payoff method instead, such as the . You can make use of a to experiment with various strategies.
If the total amount of your debts exceeds half of your income and the above calculator suggests that debt consolidation isn't the best option for you, then you're better off treading in the water.
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About the author: Amrita Jayakumar is a former writer at NerdWallet. She has previously worked for The Washington Post and the Miami Herald.







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