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Debt Consolidation


When you’re looking at a whole heap of debt, anything promising to make it easier to manage is a good thing — right?

Well, yes and no.

Sometimes different isn’t good, bad, better — nor worse.

Different can be just different.

With that said, consolidating all your eligible debts into a single loan will make your situation different. That goes without question. However, whether that difference will be beneficial depends upon a number of circumstances.

Long story short, if you’re wondering if debt consolidation is a bad thing, the answer is — it depends.

Let’s look.

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How Debt Consolidation Works

As the term implies, debt consolidation is the process of combining as many of your outstanding debts as possible into a single loan. The oft-touted advantages include the opportunity for a lower interest rate, a lower monthly payment, a more easily managed situation and the potential to raise your credit score.

“OK,” you say, “sounds good so far, so what’s there to consider?”

How’s Your Credit?

If you have a strong credit score, you’ll qualify for a debt consolidation loan at a lower interest rate than if you’re currently having credit issues. That lower interest rate will typically be the difference between making a consolidation loan a good deal and a bad deal.

After all, the goal is to reduce the amount of interest you must pay and ideally, your monthly payment as well. If you allow yourself to get locked into a high-interest loan because your credit score is low, you could make your situation worse — even with a lower monthly payment. You’ll have to accept a longer repayment term to make the payments reasonable, which means you’ll pay more.

What Kind of Loan Are We Talking About?

Some people refinance their homes or use home equity lines of credit to pay off debt. Most financial experts advise against this, as it’s effectively trading unsecured debt for secured debt. In other words, you’ll be putting your home at risk to pay off debt for which the worst consequence would otherwise be a negative mark on your credit report.

Credit card debt is the type most often consolidated, along with medical debt and student loans. These obligations are secured only by your promise to repay. If you trade them for debt secured by an interest in your home, you could be forced to sell your house to pay off the lender if you hit a rough patch and can’t make your payments.

Do You Have Self-Control?

Let’s say you have five credit card accounts, each one at or near its limit. The minimum payments on them are adding up to more than you will soon be able to continue to comfortably manage each month. However, your credit score is still pretty good.

You take a consolidation loan at a good interest rate with a reasonable term and things ease up considerably. The monthly payment is easy to manage. The interest rate is lower and you’re on track to come out ahead of the game.

Breathing a sigh of relief, you go back to spending the way you did before, falling back into the habits that loaded those cards up in the first place. You rationalize it as being no big deal because of all the money you’re saving each month, thanks to the consolidation loan.

Before you know it, all those cards that had zero balances are at or near their limits again and you have a consolidation loan to service each month too.

Simply put, a debt consolidation loan will only enable you to go farther into debt if you can’t stop charging.

The Verdict?

Is debt consolidation a bad thing? Well, like so many other things in life, it depends. Debt consolidation can be the solution you’ve been seeking if you choose your loan and lender carefully, your credit score is still strong, and you manage your money well. On the other hand, it could be the worst possible thing you could do for your finances if any of those parameters are unmet.


These days, it seems like you can’t have a financial conversation without meandering into the debt topic. It’s a hot topic for sure, as it is something that plagues more and more people everyday, especially with the rise in credit card usage.

Often, when we hear or read about loan consolidation, whether on a tv commercial or in a magazine, we don’t necessarily know the context surrounding such consolidation. It might just sound like some far away idea you’ll not ever have to grapple with. But, as it turns out, with things such as student debt, house payments, and car payments you might find yourself having to run into the debt consolidation solution.

And this is why it is important to educate yourself on the basics of debt consolidation, what you can and cannot do, what you can expect, and how you can easily get started might your situation demand it.

So, to help with your debt elimination journey, here are 5 basic facts on debt consolidation you need to know about.

1. There are secured and there are unsecured loans

There are usually two basic types of loans: secured and unsecured loans. Secured loans simply means that once your loans are established you use an asset like a car or a home as collateral in case you happen to fail to pay your loans. Unsecured loans are higher risk and are based on your credit history more than anything else.

2. If you consolidate your debt it also means you’ll get a new lender



The way debt consolidation works is through a middle entity, of sorts. You contact a debt consolidator, they work out a plan with you, then they turn around and ‘negotiate’ with your original lenders for a new rate. This means the new entity you are doing business with to consolidate your debt might also be charging you fees and expenses for their consolidation services.

That is, unless you choose the non-profit debt consolidation route. It’s important to know that most efficient debt consolidation doesn’t come as a free perk and you have to make sure you calculate how much debt consolidation fees you’ll add up in the long run.

3. You can’t actively accumulate debt and be able to consolidate

This makes sense right? But not a lot of people know it. The point of consolidating debt is to get out of it. That way you don’t dig yourself into a deeper financial hole.

In order to be able to consolidate debt, you can’t be actively accumulating it at the same time. Not only does this make sense, but it’s also mandatory from debt consolidation entities. You must stop accumulating debt and close those accounts once the debt is paid.

4. You’ll only have one payment to make every month for all your debts

The great thing about debt consolidation is that you’ll only have to turn in one paycheck to take care of all the debt consolidated. This way you won’t be missing payments, or getting late fees on top of it. It makes your financial life so much easier and you can even automate payments with your bank account. This is yet another good reason to visit consolidate.loan and get on board.

5. It can help tremendously with rebuilding your credit



Besides the stressful mental burden of having debt accumulating every month, there is the toll it takes on your credit score as well. This is one of the other great things about debt consolidation, it helps you rebuild your credit score, which opens you up to new financial opportunities in the future.

Get Financially Educated

It’s always best to be as financially educated as possible. That way you won’t fall into financial traps or make mistakes that could have been avoided. These five facts are just the very basics about loan consolidation and there is always a lot more to learn on the subject and how the process can work for your benefit.

If you are serious about loan consolidation, it’s best to speak to an experienced financial advisor that will guide you through the process and answer any questions specific to your situation.

There are a lot more variables that go into successfully consolidating loans like having a student loan, etc. This is one of the many reasons why it’s always best to be well informed before making any major financial decisions.