Want to Consolidate Your Debt? Here’s How

Debt’s a serious matter, and definitely something that can get pretty difficult to get out of. But don’t worry, because we’re here to help you figure that out. We’re going to give you some overall tips that’ll hopefully put you on the right path to clear your debt once and for all. If you don’t have any debt to speak of currently, you may also want to stick around; this article might serve as a future reference for -if and whenever- you acquire some debt. Better safe than sorry, right?

First, we need to remind ourselves what “debt consolidation” really is. Put simply, it’s a process by which a debtor takes a larger loan and uses it to pay off all his other smaller debts, so as to worry about one payment instead of several. [1] “Does that solve anything?”, you might say. It’s a bit like a double-edge sword. You need to be intelligent in order to do this right, for it can save your life or put you even deeper in the hole.

Doing this will have advantages but like we said it’s not exactly sunshine and rainbows, as there are some things to keep in mind that can screw you over if you don’t take in a responsible manner. Here are some advantages and disadvantages of consolidating your debt:


  • Combine several payments into one. Allows you to get organized and to have the convenience of making a single, monthly payment.
  • Get lower interest rates. If you have good credit, most debt-consolidation options, whether a personal loan or a line of credit on your home, offer lower interest rates than those of credit cards.
  • Reduce your monthly payments. If the interest on your new loan is lower, it is very possible that your monthly payment will be lower as well. In addition, if you pay on time and consistently, you will avoid any penalties for late payments and for going over the credit limit.
  • Pay your creditors 100%. You would pay off your debts to your creditors and preserve a positive payment history, if the accounts have been in good standing with your creditor.


  • It can cost you more money in the long run. Despite obtaining a reduced interest and payments, if the repayment period is long, at the end you may end up paying more. Also, depending on the consolidation method you use, your total debt may increase with the addition of fees associated with the loan or fees for transferring balances from one card to another.
  • You can get into more debt. Whether by necessity or by choice, if you reuse the cards you’ve already paid off, you’ll be faced with paying off the original debt plus any new debt.
  • It can cost you more. If you consolidate your cards with a secured loan, such as a line of credit on your home, failing to make your payments puts you at risk of losing your home or any other valuable possessions you may have used to secure your loan. You should avoid putting at risk things whose total value is greater than the amount on your credit cards.
  • Negative effects on your credit. Consolidating debt can affect your credit score by changing your use of credit. You don’t eliminate debt, but rather combine, affecting your available credit and debt balance. If you close your credit cards that have been paid off, your score suffers as well.

That’s just the overall gist of it all. However, there are many effective methods for eliminating personal, credit-card, and student-loan debt (among many others), but remember that the best method is the one that best suits your needs and goals. Let’s take a look at what we consider to be some of the best ways to consolidate and eventually get rid of your debt!

Credit Counseling and A Debt Management Plan

As the name implies, by doing this you work with creditors that’ll get you better terms on your loan like reduced interest rates and lower monthly payments. You have to make one monthly payment to this counseling service which then distributes it to said creditors. Note that this will require that you give up all of your credit cards except one and live on a budget to pay it all off between three to five years. [2] Also keep in mind that you need to qualify for this program; it’s based off of your income. Simply put: if you make enough to pay up your monthly expenses, you pass.

Borrow from A Friend or Family Member

Family’s there to -usually- help during tough times, and so are friends. This is perhaps the easiest and cheapest way to start your path to being debt-free. You don’t need to qualify for anything, worry about interest rates, etc. All you need to you is be honest and eventually pay up, of course.

Credit Card Balance Transfer

If your credit card has a large-enough credit limit, using a low-rate balance transfer and transferring all balances to a singular credit card can be a good way to simplify your repayment plans as you’ll only need to worry about one specific credit card.

Borrow a life insurance policy

You can consolidate your debt with this method by borrowing up to the cash value of your loan and using that, and to boot, as long as said loan amounts to less than the cash value of the policy, your insurance company won’t demand payments. It’s recommended that you do, however, because not repaying the loan means that the death benefit will be what ends up covering that and then the insurance might end up being just pennies for your family.

Borrow from Retirement

These last two are considered last-resort methods, but it’s either that or bankruptcy at this point. There are drawbacks, but most retirement plans allow you to borrow some before you actually retire. Note that this borrowed money needs to be paid within five years or else it’ll be considered an early withdrawal, thus being subject to a penalty and income tax. Don’t think of leaving your job right after, because then you’ll only have two months to pay up. Not easy choices to make these last two, so think very thoroughly.

[1] https://www.investopedia.com/terms/d/debtconsolidation.asp
[2] https://www.debt.org/management-plans/

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