What happens when you consolidate your debt?

checkbook and calculator on table

Student loans, personal loans, credit cards. For many of us, money is too hard to come by to be able to afford all our needs and wants. This means that debt piles up as we struggle to make the most of our finances and resort to using what’s available to cover the costs of living.

Unfortunately, debt does have to be paid off, and one of the ways to do that is through debt consolidation. But what exactly is debt consolidation?

Key Takeaways

What is Debt Consolidation?

Debt consolidation is where you take multiple outstanding debts and combine them into a single monthly payment. There are a couple of ways to do this.

The first is through a debt consolidation loan, where you use a loan to pay off your debts and then focus on making a single payment for the loan rather than worrying about multiple payments at once.

The second is through a debt consolidation company. This way, you make your single payment to the company, which then divides your payment and sends the funds to your creditors.

It’s important to note that debt consolidation does not lower your debt, it simply combines it into one payment rather than several. It allows you to combine all debts into one payment, so that repayment is easier.

Types of Debt Consolidation

There are many ways to combine your debts together into a single payment. We have explored a few below:

  1. Credit card: You can consolidate all your payments into a new credit card. An incentive is that you might get one that charges next to no interest for a time period. You can alternatively use a credit card you currently have and avail its balance transfer feature.
  2. Student loan programs: If you have student loans, you could consider the consolidation options offered by the federal government. There are direct debt consolidation loans available via the Federal District Loan Program.
  3. Home Equity Lines of Credit (HELOCs): These are home equity loans that may be used to consolidate debts.
  4. Debt consolidation loans: Several lenders issue debt consolidation loans to those who might be struggling to manage a large number of debts. They’re meant for borrowers wanting to pay off several high-interest debts.

How to Consolidate Debt

If you have multiple outstanding debts and are considering lumping them together into a single periodic payment, the best place to get started is at your bank or credit union. It might be helpful if you have a good relationship and payment history with them. In case this doesn’t work out, you need to look into private lenders.

Pick a loan provider that offers a lower interest and APR, and great customer service. Some providers are more flexible than others in terms of late payment fees and other penalties.

Is Debt Consolidation Right for You?

The trick to debt consolidation is to be responsible. Remember that you have the same amount of debt, just a potentially more manageable way to keep it under control and take care of it. Stop using credit cards and refrain from taking out any additional loans. This way, you can focus on the debt you do have instead of adding to it. Debt consolidation isn’t right for everyone, but it can be a good solution for anyone looking to simplify their debt payments. Here are some of the pros and cons of debt consolidation:


  • One payment instead of several.
  • Usually smaller payments over a longer period of time.
  • Lower interest rate. One payment has one interest rate instead of paying interest on multiple payments.


  • You may spend more. It might take you longer with the extended payback time to pay off your debt, meaning although your interest rate is lower, it’s collecting for longer.
  • It doesn’t solve the problem. You still owe money.
  • If you still use credit while paying off your debt, you may end up in a worse position. Don’t get too confident about consolidating your debt – just because you’re making one (typically smaller) payment doesn’t mean you have less debt to pay and more money to spend.

Does Debt Consolidation Affect Credit Scores?

In short, the answer is yes. Debt consolidation does impact your credit score. It can help raise your credit score as long as you make timely payments and avoid getting into more debt. Taking out a personal loan or applying for a new credit card will negatively affect your credit score.

Is Debt Consolidation Good or Bad?

It depends on your financial situation. It could be a great idea for some or a total failure for others. You need to gauge your finances before seeking to consolidate your debts. If you make payments on time and do not take out additional debt, you should be fine. But if you continue to make poor financial decisions and not have a plan in action, debt consolidation might be a lost cause. Along with payment consistency, another factor that determines the effectiveness of debt consolidation is credit score. If you have a poor credit score, getting a low-interest loan might be tricky. You might like the idea of having just one single debt instead of having several. But a single loan with a steep interest can be a huge strain on your finances.


Keep these factors in mind when considering your options – and if you decide to consolidate, actively use some kind of planner or calendar to stay on top of your payments so that you don’t fall behind and deeper in debt.

Before taking any action on your debt, it’s wise to do your research. Consult with a financial counselor to learn what your best options are. Debt consolidation may be the right choice for you, but don’t jump into anything you’re unsure about. Remember, any action you take on your debt and finances will likely impact them for a long time. Be smart!

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Net Pay Advance is a licensed loan provider, locally owned and operated in Wichita, Kansas. Our No. 1 priority is helping you, the customer, by providing access to the cash you need and helping support financial independence goals with valuable, informational, and entertaining content. Stay up-to-date on our posts by following the Net Pay Advance Facebook, Instagram, and Twitter pages. Our organization is committed to transparency; learn more about our authors and editorial policy. The information provided within this blog is for educational purposes only and should not be construed as financial or legal advice. Please contact us if you have any questions.

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