If you feel like a dark cloud is always hanging over you because you have too much debt, consolidating what you owe may bring clearer skies. Taking control of your finances and getting out of debt gives you more personal freedom and may relieve the stress of worrying about the money you owe. Searching for debt consolidation options can be overwhelming, but here are a few tips to consolidate your debt to improve your financial health.

Debt Consolidation Benefits

There are several reasons for consolidating your outstanding balances. High-interest loans and credit cards can make it difficult to pay down your debt. If you're only paying the minimum payment each month, it can take years to pay off your debts. In the end, you may wind up paying a great deal more for the money you borrowed.

On the other hand, consolidating your debt and paying one lender can lower the interest rate and the monthly payment. If you have one loan with a fixed length, then you know your debt will be paid in that time. That's a lot less stressful than paying the minimum each month and not knowing when you will ever pay it off.

Convenience is another benefit. Having all your debt in one place is more manageable. Instead of keeping track of multiple monthly payments (and juggling deadlines), you have one payment. Late fees add to your debt but, if you only have one bill, there is one fee.

Consolidation can also help protect and possibly raise your credit score. When your credit cards are maxed out, it lowers your credit score. Potential creditors often prefer that your cards have no more than 30 percent of your limit used, so zeroing out your balances may have a positive influence on your credit score. In addition, it may end unwanted calls from debt collectors.

Choosing a Repayment Option

There are three different ways to consolidate your debt. Some options are better than others, depending on your situation. When considering which option is best for you, carefully consider the interest rates, fees, the length of time to pay off your cards and the potential impact to your credit score.

  • Transfer to a 0% interest credit card. If you have a good credit score and qualify for a card with 0 percent interest, then you can transfer higher interest balances to your no interest card. However, many 0 percent interest offers are for a limited time. If the balance is unpaid at the end of the promotional period, the credit card company charges you all the interest that accrued from the beginning. Also, watch for fees on credit card transfers. They are typically about 3 percent, which may still make consolidation worthwhile, but there are also several no-balance-transfer-fee credit cards to choose from.
  • Pay your debt with an unsecured loan. An unsecured loan allows you to repay your debt without risking your assets. This type of loan generally has a shorter term, however, there are some drawbacks. Unsecured loans have more rigorous qualifications than secured loans. They are also smaller than loans you would get if you put up collateral. Short-term unsecured loans have higher interest rates, and they don't give you tax breaks that other loans do.
  • Acquire a secured loan to cover your debt. These loans work best for larger debts. They are easier to get since you are putting up collateral. The interest is typically lower than other types of loans. Secured loans offer a longer repayment period than unsecured loans. This type of loan is risky because you could lose your asset(s) if you fail to make payments.


  • Consult with a non-profit credit counselor to make sure debt consolidation is right for you and to see if they have a list of reputable lenders for this purpose.
  • Beware of lenders that offer debt consolidation loans regardless of credit.
  • Change your spending habits; buy everything with cash. If you don't change how you manage your money, you will wind up accruing even more debt.
  • When choosing a lender, check its rating with the Better Business Bureau.

When looking for a debt consolidation solution, do your research. Make sure you find a reputable lender and get the best terms possible. Make paying off your loan a priority and in time you will regain financial freedom. Whatever you do, don't run up any more debt.

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