Should I Consolidate My Debt?

Are you in debt and looking for a solution? Read on to see if you could benefit from consolidation.

Everyone has seen numerous advertisements touting the benefits of debt consolidation. However, few people know what consolidation is or whether or not they should consider consolidating their own debt. If any of the following apply to you, you may want to consider speaking to an accredited credit counselor about the possibility of consolidating your debt.

  • You have a significant amount of debt. “Significant” is relative to your budget but, as a general rule, if you do not have at least $1,500 in debt then you would most likely not benefit from a consolidation.
  • You have more than one unsecured account. Unsecured debt is debt that is not backed by any collateral, such as credit cards, medical bills, or signature loans. You need at least two of these accounts to consider consolidation.
  • You are behind on your payments, over your credit limits, have high interest rates, or your monthly budget is just too tight. If any of these apply, then you could possibly benefit from a debt consolidation.
  • You are hoping to improve your credit and/or purchase a home or vehicle in the future. However, if you are looking to make a major purchase (home or vehicle) in the next 6-12 months, debt consolidation is not for you. If you can wait to purchase the home, then paying off your debt through consolidation could actually help you qualify for a more favorable loan in the future, since you will have improved credit.

Be sure to as a counselor if you are unsure about your particular situation. There may be specific details of your own situation that makes your preferred options much different than someone else. Be careful about making decisions on your own based on what others say, since their situation may include aspects that make their choices different.

Consider also that consolidating debt does not eliminate it. Instead, it simply combines multiple balances. To truly eliminate your debt, you will want to consider consolidation options such as loans or debt management plans.