Total consumer debt in the United States is $14.9 trillion, and credit cards account for a large portion of this debt. The stress of paying several credit card bills can become overwhelming. Debt consolidation is a possible solution.

What is Debt Consolidation?

Debt consolidation is when a person combines several debts into a single loan. There’s one payment due each month to a single lender instead of making several payments to several lenders.

With only one loan to repay, a consolidation loan makes debt repayment manageable. But there are several things to consider before deciding whether or not a consolidation loan is a good choice.

Three Reasons to Consider Debt Consolidation

  1. High-Interest Debt. The average credit card interest rate is 18.24 percent. When a person pays their credit card bill, a portion goes to the interest. A low-interest consolidation loan saves money on interest charges.
  2. Good Credit. A credit score of 670 or higher is considered good credit. And a good credit score makes it easier to obtain a low-interest consolidation loan with favorable terms.

  3. Develop Good Spending Habits. Repaying a loan helps develop good spending habits. A consolidation loan isn’t a form of revolving credit. The loan is paid based on a set repayment plan. There’s no temptation to create more debt as with a credit card.

Three Reasons to Avoid Debt Consolidation

  1. Poor Credit. A debt consolidation loan is only helpful if it offers a low-interest rate. And having poor credit makes it challenging to get a loan with a decent interest rate. If the interest rate is high, that defeats the purpose of getting a consolidation loan.

  2. Low Debt. If it’s possible to pay the existing debt within a year or less, then a debt consolidation loan possibly isn’t worth the trouble.

  3. Bad Spending Habits. A consolidation loan frees up credit on existing credit cards. If the credit card use continues, then the consolidation loan won’t do any good.

Making the Final Decision

Carefully weigh the pros and cons of a debt consolidation loan. In a best-case scenario, a consolidation loan makes debt manageable. In the worst-case scenario, a consolidation loan can lead to more debt.