Should I Get a Debt Consolidation Loan?

Wondering if you should get a debt consolidation loan? Learn about rates, terms, amounts you can borrow, and which debts you can consolidate.
A young woman looks at her credit card bills as she prepares to consolidate her debt using a debt consolidation personal loan
Written by:
David Kirsch
Edited by:
Kristin Marino verified

Many of us know that debt consolidation is the process of taking several existing debts and combining them into one monthly payment, usually through an unsecured personal loan. What’s often not as well known is which kind of debts can be consolidated, and what different methods there may be to consolidate that debt.

Usually, the types of debts that can be consolidated depend on the type of debt consolidation method you are pursuing. Before asking yourself if you should consider a consolidation loan, learn more about this process with AmONE.

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What Is Debt Consolidation?

Consolidating your debts means combining multiple debts, such as credit card balances, personal loans, or medical bills, into a single loan or credit account.

This can simplify your repayment process by turning multiple monthly payments into just one.

It can also potentially lower your interest rate and monthly payments, making it easier to manage your debt and pay it off over time. Some common methods of debt consolidation include taking out a personal loan, using a balance transfer credit card, or securing a home equity loan or line of credit.

How Does a Debt Consolidation Loan Work?

With a debt-consolidating loan, the goal is to obtain a loan at a lower interest rate to help you pay off all of your higher interest rate loans or credit cards.

Usually, the debts you will combine into an unsecured debt consolidation loan will be limited to debts with higher interest rates.

Paying off your credit card with a 19.9% APR using a 10.5% APR debt consolidation loan makes sense, but paying off your car loan at 2.9% APR with that same 10.5% APR loan probably doesn’t.

Although the interest rate from the debt consolidation loan may be lower than your credit card interest rate, it will likely be higher than your secured interest rate or student loans, so it is unlikely to save you money or make your payments easier.

There are specific programs available to help people consolidate student loans, so in the vast majority of cases, those loans should be treated separately from any other debts.

Is Debt Consolidation the Right Move?

It’s also important to consider whether debt consolidation is the right option for you. While it can simplify your payments and potentially lower your interest rates, it may not save you money in the long run, especially if you’re consolidating debts with lower interest rates.

If debt consolidation isn’t the right choice for your situation, there are other options available. Debt management programs and debt settlement programs can both be helpful alternatives, but they may have credit repercussions and require changes to your financial habits.

Find debt consolidation loans, compare rates, and see what payoff terms you qualify for.

What Is a Debt Management Program?

You may want to consider a debt management program or a debt settlement program, which can both prove to be helpful alternatives if your credit situation is such that a debt consolidation loan isn’t a possibility.

Debt management programs will consolidate credit card debts into one payment, usually dramatically lowering or eliminating interest and fees.

A caveat to that program is you will usually be required to cancel all of your cards except for one to show you are serious about getting your debt under control – a small price to pay to get out from under a mountain of debt.

Debt settlement companies will work directly with your creditors to try to negotiate paying your balances at less than full value, sometimes as low as $.40 of every $1.00 of debt.

Both of these options can get you out of debt quicker than you can by simply continuing to make payments, but they do have credit repercussions so it’s important to understand all of the facts before choosing a debt solution.

What Debts Can Be Consolidated?

When it comes to debt consolidation, it’s important to note that not all debts can be consolidated. The types of debts that can be consolidated depend on the consolidation method you choose. For example, personal loans and credit card balances can typically be consolidated through a debt consolidation loan, while student loans usually require a separate consolidation program.

The Importance of Changing Your Financial Habits

It is important to change your financial habits if you’re in debt because continuing the same habits that led to your debt will only make your situation worse. Debt can have significant negative impacts on your financial and mental health, and it can be difficult to climb out of debt without making significant changes to your spending and saving habits.

Speaking of financial habits, it’s crucial to change them if you want to improve your financial situation and achieve financial freedom. This means creating a budget, tracking your spending, and finding ways to reduce expenses. It may also involve increasing your income through side hustles or negotiating a raise at work.

By changing your financial habits, you can start to take control of your finances and work towards paying off your debt. This may involve creating a budget, tracking your spending, and finding ways to reduce your expenses. It may also involve increasing your income through a side hustle or asking for a raise at work.

Changing your financial habits can also help you avoid falling into debt in the future. By developing healthy financial habits, such as saving for emergencies and setting financial goals, you can build a stronger financial foundation that will allow you to achieve your long-term financial aspirations.

Ultimately, changing your financial habits when you’re in debt is crucial to improving your financial situation and achieving financial freedom.