Should I Consolidate My Debt?

by Joy Uyeno ; Updated July 27, 2017

Debt consolidation is not a one-size-fits-all option. Choosing to consolidate as a means to get out of debt requires strict dedication to paying off your debt for good. You must recognize both the benefits and risks of using consolidation before beginning the application process. Other options may be more useful for your particular situation.

Types

Debt consolidation comes in three different types: consolidation loans, home equity lines of credit and zero-interest credit cards. Each of these methods is considered consolidation, because with them you can gather multiple debts under one account. Each carries risks: you may lose your home if you don’t make payments on a home equity loan, the low introductory rate will run out on a zero-interest card, and you may actually end up paying the same or more with a debt consolidation loan.

Pros

The biggest benefit to consolidating your debt is convenience. Rather than making individual payments to multiple accounts each month, you make a single payment. Also, with a debt consolidation loan or home equity line of credit, you may be able to get a lower interest rate than the ones you currently have on your credit cards. Obviously, with a zero-interest credit card, your interest will be lower, so if you’re disciplined in sticking to a payment plan that eliminates your debt within the introductory period, it will help you to avoid paying high interest rates.

Cons

With debt consolidation, you’re fighting your debt by taking on more debt, and this counter-intuitive method fails more often than not. According to credit union manager Chris Viale, 70 percent of those who utilize debt consolidation end up with the same or more debt within two years. Ultimately, you could end up with more debt because consolidation frees your current balances, and there is no barrier keeping you from slipping back into the bad habit of using that credit again. You need to be solidly committed to eliminating your debt and staying on track if you decide to utilize consolidation.

Other Options

Paying off your debt through other methods may be more beneficial, depending on your individual circumstances. If you’re prone to overspending, you may find more success by strategically paying off your debt by using the debt snowball plan, in which you pay the smallest debt first, or the highest interest plan, in which you pay the debt with the highest interest first. Others may find debt management plans (DMPs) or even bankruptcy to be better options for their current financial problems. Working with a reputable credit counseling organization will help you to determine which option will work best for you.

About the Author

Joy Uyeno has been writing about travel, food, fashion, culture and finance since 2005. For three years she wrote a column for the "Honolulu Star-Bulletin" aimed at young and first-time travelers. Her writing has appeared in several local and national publications, including the 2008 anthology "Honolulu Stories." She holds a Master of Arts in writing and publishing from Emerson College.