Having debt is something that we all have to deal with in our lives at one time or another. Sometimes it can get a little out of control but before it gets to the point of no return, know that there are some good options out there. Debt consolidation is one of those options. Knowing the circumstances that are the most ideal to have before consolidating and what you can consolidate are important to understand and make the best decision to improve your financial situation. Here we will go over what you can and when you should consider debt consolidation.


Debt you cannot consolidate

Debt consolidation is a great resource to condense your unsecured debts into one loan. Unsecured debt includes credit cards, medical bills, payday loans and student loans. The secured debt you have is not available to be part of the consolidation. Secured debt include things like child support or alimony, unpaid taxes, penalties, or fines from the government, mortgage loans and auto loans. The reason that secured debt cannot be consolidated is because there are assets involved. If you default on those loan payments they can take the collateral you put up in order to get the loan or what they lent to you, such as your car or home. Unsecured loans do not involve collateral so there is no risk in losing any property.


When to consider debt consolidation

If you have multiple accounts open with high interest rates attached to them, it would be wise to consider condensing them into one loan as this gives you a fixed interest rate. With all of your debt allocated into that one loan, you pay less money over time because you are paying less in interests. In a lot of cases consolidating will shorten the length of your individual accounts, and once you pay off your consolidation loan you are free and clear of debt from those accounts. A good way to tell if it is a smart move for you to consolidate your debt is if your total debt does not exceed 40% of your gross income. This is not including your mortgage. If this is the case for you it may be worth wile to consolidate. Also making sure you have enough cash flow coming in to make the payments consistently and on time each month for your new condensed loan is a good indicator on if this option is right for you.


Circumstances that are not ideal for debt consolidation

If your debt is small enough to be paid off within six months to a year, it may not be worth it to consolidate. It will more than likely just be a waste of time and not save you a significant amount of money. In this case you are better off trying a do it yourself method like the debt snowball or debt avalanche. A debt snowball is when you create a budget for yourself and with the money left over you apply it to the smallest amount of debt you owe. Once that debt is paid off you then apply the entire amount you were paying for that one debt to the next smallest debt, causing a snowball effect. A debt avalanche is a similar method to the debt snowball but instead of paying off the debt with the smallest balance you start by paying off the debt with the highest interest rate. This gives a similar effect as the debt snow ball as it help to save time and money in the long run by cutting down your payments with high interest.

If the total of your debts are more than half of your income you might want to consider debt relief instead. In that case you more than likely will be able to get a good portion of your debt discharged.


There are a lot of factors to consider when contemplating debt consolidation. Research alternative options before officially taking action. You can also seek professional guidance and help when it comes to determining which debt option will be most beneficial to you. Debt consolidation is great if you have a decent credit score but are in danger of having it significantly drop from not being able to keep up on debt payments. Consolidating can be the savior of your score and help you maintain your good marks on your credit report.


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