The Pros and Cons of Consolidating Debt

Having some form of debt is not the end of the world, but if it doesn’t get paid off, debt can rack up and ruin an excellent credit score.  You may have considered consolidating your debt into one monthly payment...

Having some form of debt is not the end of the world, but if it doesn’t get paid off, debt can rack up and ruin an excellent credit score.  You may have considered consolidating your debt into one monthly payment to help you get caught up.  While this is an easy way to help, you figure your debt situation, you need to weigh the pros and cons of consolidation.  There are different types of debt consolidation, and you should find a plan that works best for you.  If you have too much debt, and cannot afford payments, it’s imperative you figure out your options.

Debt Consolidation Types

When you first start looking at consolidating debt, it’s good to know what types are available.  You can choose from:

  • Debt Management Plan (DMP)
  • Balance Transfer on Credit Cards
  • Personal Loans
  • Home Equity Loans/Line of Credit
  • Debt Settlement

A DMP is one of the most popular choices available.  They have credit counseling and education programs available, which is perfect for those who are struggling to find the cause of their problem.  When the program is complete, credit counselors will give you advice to help you, preventing you from falling in the same trap.  The biggest issue with DMP’s is the length of the program.  It can last anywhere between 3-5 years, and some people struggle to last that long.

Credit card companies attract people with their zero percent balance transfers, but you need to qualify to be considered.  A credit score of over 700, and a transfer fee is what it takes to qualify for this type of consolidation.  When you include the expiration date of the 0% interest, which is anywhere between 12 and 18 months.

Personal loans are another way to consolidate your debt.  You can enroll through a bank, credit union, or online lender.  While the interest rates vary between each company, they typically have a lower interest rate than a credit card.  There can be origination fees, prepayment penalties, or other collateral you will need to put down.  This can include your mortgage or car, and may not get you the money you will need.

If you own a home, using a house as collateral can be beneficial or devastating, since you’re putting your house up for collateral.  It’s a risky move that includes fees and other costs, but it could help you pull yourself out of the debt hell you may be in.

Debt settlement allows you to resolve any debt by settling with a collector for less than the asking price.  It is a risky move, and typically recommended as a last resort for some cases.  It’s a good way to help settle debt with a lump sum, but you must conduct this process with each collector.  Interest rates can incur, furthering your debt situation, and may not even help at all.

You want to consider your options when you’re looking for debt consolidation.  Time, effort, and the outcome can play a huge role in your decision.  While it may take a long time to fix your debt issues, you will have relief when the collections stop calling.  Raising your credit score is a long and tedious task, but it’s possible to pull yourself up, and save money.


There are many benefits to consolidating your loans.  Credit cards are the biggest reason why people fall into debt, and can wreak havoc on your finances.  When it comes to debt consolidation, it’s understandable why people choose this route.  It simplifies your bills, allowing you to work with one dealer instead of multiple people.  You can save money with debt consolidation.  Here is how debt consolidation can help you.

Credit card payments are placed into one monthly payment, which is ideal for those with multiple credit cards.  You make one payment a month, and the credit card debt will start to go down.  Considering the average American owns 3.5 credit cards, with over $15,000, it’s an excellent way to get your finances in order.  Worrying about one bill instead of three or four will take the pressure off, and allow you to take care of unpaid bills.

When you consolidate your loans, the interest rate is reduced.  Averaging over 20 percent a year, credit cards can suck the money out of your wallet.  Finding the right debt consolidation will drastically reduce those rates down to around 10 percent, or less.  It’s an excellent option for getting rid of high interest rates you can’t afford to pay every month.

When consolidating debt, you can pay it off faster.  Since more of your monthly payments aren’t going towards interest rates, debt is getting chunks paid off.  You can pay off your debt within a few years when you decide to consolidate your loans.  Consider that paying the minimum amount each month can take years to pay off.  This prevents the interest rate from digging into your monthly payments every month.

Consolidating your debt prevents you from falling behind on your payments.  Your credit score won’t get damaged if you’re making the monthly payments, while debt is getting crushed.  You’ll stay ahead of credit score damages, and prevents you from claiming bankruptcy.  If you must file for bankruptcy, your credit score can dip below 600, and create years of pain.  When it comes down to consolidating and filing for bankruptcy, it’s better to try and consolidate your debt, rather than taking the worst option available.


While consolidation is an excellent way to help, yourself get out of debt, it does have its drawbacks.  You should weigh your options before you decide to consolidate, and talking with a banker will help you decide.  While the drawbacks may not be devastating, they can linger for a long time.  Finding the right option will limit some of the drawbacks of debt consolidation, but it’s good to know what to expect when you decide to apply for debt consolidation.  Here are the cons of consolidating your debt.

Using a credit card before it’s paid off will take longer to pay off, which is the opposite of what you’re trying to accomplish.  If you consolidate your debt with a zero balance, it can be tempting to take advantage of the situation.  Taking on more debt without paying your other debt first is not the ultimate goal, and if you decide to take on more debt, you will be in the sinking boat for a longer time.  It’s best practice to take care of your current debt, rather than go out and spend money you can’t commit.

Missed payments can leave you where you started, or worse off.  You need to make the payments on schedule and avoid any setbacks.  Your credit score can get damaged from missed payments, and additional penalties may be applied to your account.  Penalties that have been removed previously may start to incur interest again, at the normal rate, which can set you back further than you should be.  Staying focused and keeping up with your goal will benefit you in the long run.

Even if you do consolidate your loans, the debt is still applied to your account.  It is still the same amount of money that needs to be paid off.  You will need to cut out expenses that you don’t need, and apply more money towards the debt.  Even though you may not want to cut down on your spending, not paying the bill won’t help your situation.  It’s a necessary sacrifice if you want to get out of debt and use your money more wisely for the future.  It can be difficult cutting down on unnecessary items, but it will benefit you in the long run.

Time is another factor to consider when you consolidate your debt.  It can take years, but it will be worth it when it’s done.  If you enter a debt management program, you can expect the process to take between two and five years.  If you don’t have the time to devote to paying off your debt, getting into a program won’t help you.  You will need to stay patient and focused, so you don’t get distracted and start missing payments.

What’s the Best Plan?

You will need to consider your situation, and determine which plan would be the most beneficial to you.  There are viable options available, and knowing more about your credit score will help in your decision.  Some plans are only available for people with excellent credit scores, while others appeal to those in difficult situations.  While every plan does have their pros and cons, you can find the perfect plan to help you get rid of the debt monster.