Is Consolidating Debt a Good Idea?

Consolidating debt is the process of putting multiple debt accounts into a single place and making a single payment toward paying it off. The process of debt consolidation is promoted by many companies and experts. Debt consolidation can provide you with the benefit of being able to focus on your debt in one place. At the same time, however, it could cost you more money to go this route.


Many people who are in debt have several credit cards, store accounts, and other types of debt. Trying to keep up with all of those monthly payments can be a hassle, and many people end up missing payments. With debt consolidation, this should no longer be an issue, as there would be just one balance to focus on paying off.


There are a few different types of debt consolidation that you could pursue. One type of debt consolidation involves using a home equity loan to pay off all of your accounts. Another consideration is to take out a personal loan from a bank. Transferring all balances to a single credit card with an introductory interest rate of zero percent is yet another option.

Interest Rates

One of the big benefits of debt consolidation is that you can potentially save money on interest rates. When you have several types of debt like credit cards or store accounts, there is a good chance that you are paying very high interest rates. By consolidating your debt, you can often get a much lower interest rate. This could help you lower your monthly payment and help you save money over the life of your loan.

Tax Benefit

One of the benefits of consolidating your debt is that you can potentially get a tax advantage. If you use a home equity loan to consolidate your debt, you can deduct the interest that you pay on your new loan. With a regular credit card, you cannot deduct the interest from your taxable income. When you convert that debt into a home equity loan, the Internal Revenue Service allows you to deduct the interest, which could give you a large tax break.


If you are thinking about consolidating your debt, there are a few routes you should consider avoiding. One example is the hard money lender. While hard money loans are easy to get, they have very high interest rates and are generally only a short-term solution. Something else you want to avoid is companies that charge a fee to negotiate lower interest rates on your debt and to make your payments for you. While this is a legitimate service, you could do the same thing yourself without paying a fee.


About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.