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Are you sick of keeping track of your debts, checking on due dates, and logging into different lender portals to pay them off? It is one of the most time-consuming parts of someone’s financial journey.
There are two ways you can combine multiple debt balances into one payment. You can either transfer the debt to a credit card or take out a debt consolidation loan at a low interest rate.
For example, let’s assume you’re paying these average monthly payments:
| Pay Per Month | APR | |
| Student Loan | $222 | 5.8% |
| Car Payments | $648 | 7% |
| Credit cards | $110 | 19.99% |
| Personal Loan | $520 | 4% |
| Total: | $1500 |
With a debt consolidation loan, you’ll combine them all. You can pay something like this.
| A Debt Consolidation Loan | $865 | Low APR |
Table of Contents
Terms to qualify:
Lenders require a certain minimum credit score. Before proceeding, they will want to know how much debt you have and your credit history. The higher the score, the better the rate.
Some Benefits of Debt Consolidation
You might be able to get a lower interest rate.
By rolling all your debt into one loan, you’re likely to get a better interest rate, but you need to have a good (or show signs of improvement) credit score. Over time, it will save you a lot of money.
Pay Debt Faster
With that money saved, you can apply it to your debt. Since you used to pay more, more of that money will go toward the principal and lower your balance at a faster rate.
You’ll be able to make a single monthly payment.
If this is not the first best thing to save time, it is certainly the second. You won’t have to log in to each loan portal on your debt list. With that, it’s hard to forget to pay a creditor.
Some Drawbacks to Debt Consolidation
You may end up paying more.
Paying the loan at a low rate and making one payment a month is a deal breaker, right? But if you pay close attention to the numbers, you could pay more in interest over the life of the loan.
For example, let’s say you owe a total of $36,000 at a 21.99% annual rate, compounded on a monthly basis. Your monthly payment will be $1,374.67 for 36 months. In this case, the total interest you’ll pay is $13,488.12.
Assume you have a good credit rating. Your monthly payment will be only $865.91 for 60 months if you consolidate your debt into a lower interest loan, in this case 15.5%. Over the life of the loan, however, the interest paid will be $15,954.89.
Make sure you don’t miss a payment.
Any loan can be problematic if a payment is missed. We all know and expect to be charged a late fee, but being moved to a higher APR for breaching the agreement and having our credit reported to the credit bureau is a different story. This puts you in a deeper hole.
It’s difficult to see your credit score rise a notch while it’s all too easy to see it plummet a few points for missing that one payment, as I’ve discovered on my debt repayment journey.
It may put you in more debt.
It’s not as simple as waking up one day and consolidating all of your debt into one loan. Your attitude toward money needs to change as well. Stick to your budget and commitment. It makes no sense to use the extra cash flow or to take more credit to accumulate debt by overspending and purchasing items you do not need.
Related: 4 ways to make your paycheck last longer
Popular Debt Consolidation Loans Companies
| Lenders | Rates as of June 2022 | Line Amounts Ranging from |
| Upgrade | 8.99% – 29.99% | $500-50,000 |
| best egg | 5.99% – 35.99% | $2,000 – $50,000 |
| SoFi | 6.99% – 22.23% | $5,000 – $100,000 |
| Upstart | 5.42 – 35.99% | $1,000 – $50,000 |
| Wells Fargo | 5.74% to 20.99% | $3,000 – $100,000 |
Create your own plan.
Is debt consolidation right for you? Depending on your situation, it could be the best option for you.
For me, I contemplated combining all my debt into one single payment. I did not bother proceeding because I knew I wouldn’t be qualified anyway due to my low credit score.
After doing some research and putting all the numbers together, I’ve decided to do it myself. It was time to face my demons.
So I first had to lower my spending by following a realistic monthly budget. Automate all your bills and money transfers. In the process, I set aside a savings account to tackle emergencies. This has been my strategy since 2020, and I hope you can somehow tweak it and fit it to yours.
Are you looking into getting a debt consolidation loan? Or have you taken one before?
Photo by Karolina Grabowska
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Gio founded TheGrowthFocusedGuy in January 2020 because he was fed up with debt.
His mission is to document his journey to Financial Independence in order to motivate and inspire others to get out of debt and begin building generational wealth.
