Should I Consolidate My Debt?

(The look you get when you remember you haven't paid your credit card bill.)

We have an enormous problem in this country. No, I'm not talking about our inability to only watch one thing on Netflix at a time, although I'm writing this as I watch my third movie today. I'm talking about debt. We are a nation drowning under the weight of our liabilities. With more than $1.2 trillion in student loan debt and $1 trillion in consumer debt, millions of Americans are looking for ways to crawl out of this deep hole. Our desperation mixed with a lack of understanding options often leads to more poor decisions.

One question surrounding debt is whether or not to consolidate it. The term "consolidation" gets thrown around a lot, but how much do you really know about consolidation and your other debt repayment options? Before you agree to any consolidation agreement, I want to discuss your various options and help you get a better understanding of the pros and cons of consolidation.

What Is Consolidation?

Consolidation generally means refinancing your current loans so you have an extended pay period, hopefully a better interest rate, and instead of paying down several loans you'll now only have to focus on this one new loan. Sounds good, right? Well, unfortunately, it's not that simple.

Debt consolidation will often keep you in debt longer than if you stuck with your original loans. You aren't guaranteed to get a better interest rate when you consolidate and just because you're restructuring your debt doesn't mean it's eliminated. Most people don't know the difference between debt consolidation and debt settlement loans either and unfortunately, both can end up costing you thousands.

Debt Consolidation Program vs Debt Settlement Loan

Okay, so if you're looking into debt consolidation you have to know what you're getting into. Debt consolidation involves rolling several loans into one. Now, as I mentioned, you only have to pay on this single loan. Get it? Cool. This sounds great, but it can be dangerous. There are a lot of scummy consolidation programs out there. Many of them are dishonest. The interest rate you're initially offered on your new loan is likely variable, meaning if it's low now, it could go up. Lastly, if you consolidate your debt, the company may offer you a slightly lower interest rate than what you're paying now and an extended term to pay it off. It sounds good in theory, but it can actually cost you significantly more money.

Think of it this way: Your monthly payment will be lower, BUT you will be in debt LONGER. In fact, you'll probably end up paying a lot more because it's going to take you a hell of a lot longer to pay down this loan than your original loans. In simple terms, just because the interest rate is lower, you aren't actually saving yourself any money in the long-term. Crunch the numbers to make sure your consolidation isn't actually costing you more. Short-term relief isn't always worth the long-term costs.

Debt settlement loans and debt consolidation are not the same thing. I repeat: they are not the same thing! Debt settlement companies negotiate a lump-sum payoff with your creditors. Oh wow, that sounds terrific. Hold your horses, Sally. Debt settlement companies charge fees and they aren't cheap (usually anywhere from $1,500-$4,000).

There are a lot of shady ass debt settlement companies that'll straight up just pocket your fees and never really get around to negotiating with your creditors. Don't ever pay a debt settlement company before they work with your creditors. That is a violation of the Fair Trade Commission. Actually, just avoid debt settlement companies altogether.

And as for debt consolidation? I think, in most cases, it should be a last resort.

Okay, Catie, that's good to know but it doesn't help me pay off my debt. What should I do and where should I begin?

Let's start here:

What Kind of Debt Do You Have?

First, let's figure out what kind of debt you have. Not all debt can be consolidated. You can't consolidate mortgages, car loans, government loans, lawsuits, IRS debt, and a few others. You can consolidate credit card debt, student loans from private lenders, unsecured loans, payday loans, medical and hospital bills, and several others. There are special student loan consolidation programs for federal loans. It's, first and foremost, important to understand what kind of debt you have and your repayment options. If you do decide to consolidate be sure to do your due diligence in picking a reputable program that'll best service the types of debt you carry.

If You Have Credit Card Debt

If you have significant credit card debt, you first need to know the balance on each card, the interest rate on each, and all the terms associated with your various credit cards (fees, rewards, penalties, everything!) As usual, knowledge is power, so learn as much about your cards as possible. You can't possibly make a good decision on a debt repayment plan without this information.

What You Should Do Next

I would suggest calling each of your credit card companies to negotiate better terms on your own (there are scripts online on how to talk to them to lower your interest rates). If you can do the bulk of negotiating and talking to your credit card companies, it’ll save you a lot of money. The more you can do on your own, the less you'll have to spend to have someone else do it on your behalf.

National debt relief and debt consolidation will affect your credit score depending on the option you choose. A bad credit score (generally under 600) can prevent you from making larger purchases such as cars and homes. Unfortunately, it’s usually best if you deal with the credit card companies yourself. Most credit card companies will work with you to negotiate better terms. Finally, after you talk to the card companies, prioritize paying off the highest interest rate cards first. You'll likely have to make changes to your monthly spending and learn to sacrifice in the short-term for the benefit of your long-term finances. If you still feel uncomfortable and like you are unable to handle the payments, then resort to debt consolidation.

Get a Plan, a Positive Attitude, and Change Your Habits

Just remember, you absolutely can handle this. Getting out of debt is totally possible when you're taking the necessary steps to do so. If you're researching your options, educating yourself, and creating a plan of attack, you are already on the right path. Stay focused and motivated. I want you to really think about how you got into credit card debt. Money is mental. Is your debt repayment plan curing you or just treating symptoms? If you're just treating symptoms, you'll likely find yourself in the same debt trouble over and over again. Be honest with yourself, do you need to change your money habits? You don't want to be in this position again, so what about your behaviors needs to change to avoid future debt problems?


Financial literacy and education is everything. If I can learn this stuff and become a financial planner, so can you. Well, you don't have to become a financial planner. Not everyone can live this rock n' roll lifestyle. I hope the sarcasm is clear. I don't really like math or numbers either, to be honest. But I know life changing benefits of financial literacy. This is also about personal accountability. It's up to you to get a game plan out of debt. It's up to you to find ways to stay motivated. It's up to you to change your bad habits. It's up to you to learn about money. It's not rocket science. It's not as boring as you think and it's essential to your future success.

I'll follow up this post up with an article on creating a debt repayment plan!

In the meantime, here are a few resources to help you learn more about debt repayment and consolidation:

This is a good article on the pros and cons of debt consolidation. I love Ramit Sethi’s scripts to use when talking to credit card companies.

Dave Ramsey's debt snowball method is effective, easy to understand, and I recommend this book to all my clients with significant credit card debt.

Let's make 2018 your year to get out of debt!!!

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