10 Reasons You Should Consolidate Your Debt Now

Feeling overwhelmed by juggling multiple debts with varying rates and deadlines? Late fees and high interest can trap you in a spiral of debt.

But there's hope. A debt consolidation loan can simplify your payments, potentially save you money, and reduce your money worries.

If you're considering this option, here are 10 signs it might be the right move for you.

A whopping 65% of Americans live paycheck to paycheck, according to a 2023 survey from The Harris Poll. And 35% of American households run out of money before the end of nearly every month.

If you count yourself among that number and your high debt payments are a key reason, consolidating your debt could give your budget a little more breathing room, helping you stop living paycheck-to-paycheck.

Credit cards have some of the highest interest rates of any type of debt. If you carry over a monthly credit card balance, the interest you’re charged grows your balance month over month, digging you deeper and deeper into a financial hole.

Debt consolidation loans typically have better interest rates than credit cards, so consolidating debts could mean you pay less in overall interest. 

Paying back a loan in regular installments is much less stressful (and affordable) than paying back a credit card balance that increases exponentially with every billing cycle.

Transferring the balance of an old credit card with a high interest rate to a new card with a 0% introductory APR can buy you some time to pay down consumer debt without accruing interest. 

It can be a smart move if you’re generally good with credit cards and always pay off the balance before your introductory APR offer disappears.

But if you have a habit of opening new credit cards to pay off old balances in a repeating cycle, a debt consolidation loan could be smarter than a balance transfer. 

After all, even the best 0% APR offers won’t last forever. As soon as your credit card debt expires, you could be back in the same vicious cycle of increasing credit card debt.

There’s a big difference between a fixed-rate 30-year mortgage loan and a rotating balance on a high-interest credit card. 

If you have standard loans with reasonable terms, consolidating debt could hurt more than it helps by landing you with longer repayment terms and higher fees.

In contrast, consolidating your debt could be a good move if most of your debt comes from your high-interest credit cards. The right debt consolidation loan might get you better loan terms with lower rates.

If you’re consistently missing debt payments, accruing late fees, or making minimum payments on high-interest debt, your credit score will start to suffer. As a result, you likely won’t qualify for good loan terms that can make debt consolidation loans worthwhile.

If your debt payments are starting to get out of hand, but you haven’t had to default or miss payments yet, now’s the time to consider debt consolidation.

It’s a good idea to save at least a small portion of your paycheck, either by adding to your savings account or building your retirement fund (or, preferably, both).

If you aim to save money but are unable to do so because you need that money to pay debts, a debt consolidation loan with a lower interest rate or monthly payment could free up space for savings.

If you have so many monthly payments that you can’t keep track of them all, or if your forgetfulness causes you to rack up late fees on multiple monthly payments, a debt consolidation loan is in order.

Remembering to make one payment is much easier than remembering half a dozen payments, especially if they’re all due on different days of the month. 

Plus, being charged a late fee for one missed payment is much cheaper than accruing multiple late fees on various loans.

Trying to account for the costs of multiple debts throughout the month can make it hard to set (and stick to) a budget. Having just one consistent monthly payment might make budgeting a little easier by simplifying the amount of numbers you have to work with.

Paying the minimum amount due on any loan is much better than foregoing the payment altogether, but it prolongs the time it takes to pay off your debt. That also means you’ll end up paying substantially more in interest.

If your debt consolidation loan has a better interest rate than your credit card (and it almost certainly will), making just the minimum monthly likely won’t be as big of a deal. 

Ideally, though, it will give your budget enough of a break room that you can start contributing more than the monthly minimum, paying off your loan faster.

A debt consolidation loan could be a smart money move if your debt is situational. For instance, maybe you ended up with a lot of high-interest debt because you lost your job and totaled your car within the same year. 

Consolidating your debt under a loan with more favorable terms can help return you to your financial baseline.

But if you can’t stop accumulating debt, consistently live beyond your means, or adhere to a budget, consolidating your debt is a band-aid solution at best. 

Unless you can change the habits or circumstances that created the debt in the first place, a debt consolidation loan will just add to your stress and debt load.

Debt consolidation requires discipline and commitment. While it can be a powerful tool for tackling existing debt, it's crucial to remember that it's not a magic bullet.

If you struggle with overspending or lack a budget plan, consider seeking professional financial guidance before consolidating. 

Take the first step today by exploring your options, talking to an expert, and building a plan to crush your debt.