Consolidating debt can be very beneficial for people who are overwhelmed with the amount of bills that they are paying each month. Although consolidating isn’t right for everyone, it can be a lifesaver to many folks. For instance, if you simply can’t make your minimum payments, you may need to consider debt consolidation. There are many different ways to pursue this concept, and many benefits if approached appropriately.

How Debt Consolidation Ideally Works

Ideally, you will pay off high interest debt with one low interest loan through debt consolidation. You are ultimately taking out one large loan with the sole intent of paying off other outstanding debt. For instance, you might use the equity in your home to pay off several credit cards, a vehicle, and an unsecured personal loan. There are several benefits that could come from this type of arrangement.

Easier Monthly Payments

If a debt consolidation is well planned, it is very likely that the amount of money you pay out each month will decrease. This is incredibly helpful to those struggling to make ends meet.

Save Money in the Long Run

The amount of money you pay out monthly will often decrease with the use of debt consolidation because you eliminate excessive interest payments. You effectively save yourself thousands of dollars by combining several high interest payments into one low interest loan. As a result, you save money over time and in the present.

Increase Tax Deductions

Credit card, personal loan and other debt interest is not tax deductible. However, interest paid on a home mortgage or a home equity line of credit is. So, if you consolidate your loans by refinancing your home or taking out a home equity line of credit, you can deduct all of the interest you pay at tax time.


Debt consolidation is very convenient. Instead of paying four or five bills each month, you only need to make sure one payment is made after consolidating. You don’t have to worry about forgetting one and getting slammed with late fees; you pay the one bill and you’re finished until next month.

Improve Credit Rating

By paying off your high interest debt in advance, you may also increase your consumer credit score. Typically, having three to seven different credit accounts at once will help you to optimize your credit rating. If you consolidate the credit accounts you have so that you are within that three to seven account range, you may see your credit score rise. A higher credit rating means better interest rates on future loans and credit cards.

Methods for Consolidating

There are several different ways that you can approach debt consolidation. It is imperative that you carefully evaluate all of your options so that you can optimize the experience as much as possible. Typically, using your home’s equity is the least expensive way to consolidate your debt. You may also utilize a low interest credit card with a high limit to consolidate smaller, high interest cards. Personal loans are options for consolidating debt, but may be quite expensive. If you are unsure which method you should use, you may consider contacting a credit counseling service. However, take care with your selection of counseling providers.

Debt consolidation can be very helpful for those who are struggling to make their minimum monthly payments. However, the concept should be approached with caution and other possible solutions should be explored, such as increasing income. If approached correctly, debt consolidation can be a real financial game changer.