Should you try to combine your debt into one account

June 19, 2018
Debt consolidation is a popular term. In theory, putting all your credit card debt and personal loans into one place can seem like a good idea. You will only have to make one payment each month, and you will know exactly how much you owe.
Should you try to combine your debt into one account

Combining your debt into one account may not be the best option for everyone. Here is what you need to consider before you undertake a debt consolidation strategy.  

  1. Should I secure my loan? This is a tricky question. If you have collateral, such as a home or car, you could get a lower interest rate by securing your debt consolidation loan with your property. Of course, that means that your property will be at risk if you default on the loan. Also, if you don’t own your own home or have a car, then this is not a viable option.
  2. Can I get a lower interest rate without securing my loan? Perhaps the better option is to see if you can get a personal loan or transfer the debt to a credit card with a lower interest rate than your current debt. At least then you will be paying less in interest than you are paying now. 
  3. How many different loans do you have? If you have multiple credit cards and personal loans, it may be tough to manage the various payments. If this is the case, you may want to put all your debt in one place to make payments more manageable. However, what if you only have two or three different credit cards or loans? In that case, it might be better to focus on paying off the debt on one card or loan at a time while only making the minimum payments on the others. 
  4. Are your finances under control now? This is an essential question because debt consolidation will not matter if you continue to build more debt in the future. If you need to borrow money, perhaps the best option is to use an online personal loan instead of a credit card. These loans are easy to apply for, and they do not require a complete credit check. You can pay off the online personal loan separately from your other debt. 
  5. What’s the timeframe for paying off your debt? Debt consolidation should make managing and pay off your debt easier. You should have a bright idea of how you are going to manage your consolidated loan and pay it off. This includes giving yourself a time frame for making the payoffs.

Debt consolidation is an effective way to manage your loans better and pay off your credit cards. However, you need to understand when it is beneficial and when you would be better off using an alternative strategy to help reduce your debt.