How To Find Out If Debt Consolidation Is The Right Choice For You

Many people were already in debt or struggling to pay it off before the coronavirus pandemic. But now, with high unemployment, a recession, and everything else, these people — and many more — have more than likely taken on even more debt to make ends meet. 

If you have a wallet full of credit cards waiting for you to pay off the balances, or perhaps unpaid loans, debt consolidation might sound appealing. But how do you know if it’s the right choice for you? The Motley Fool offers a few tips to help you decide if debt consolidation is your next move.

What Is Debt Consolidation?

Debt consolidation is when you transfer credit card balances, loans, and other types of debt into one lump sum. Rather than juggling all these payments every month, you simply make one payment for everything. Since you only have one interest rate, this process can make getting out of debt much easier — especially if you get a lower rate.

Here are four ways to consolidate debt:


  • Get approved for a balance transfer credit card and transfer your current balances to it
  • Apply for a personal loan to pay everything off, then focus on paying that one loan
  • Do the same, but with a home equity loan
  • Use a cash-out refinance to pay down your debts, then repay a higher home loan over time


Each strategy has its benefits and disadvantages, so you should do your research to determine the right solution for your needs. For example:


  • Balance transfer cards could give you 0% APR for up to 18 months as a sign-up promotion, but you need to account for the cost of transferring your balance. Plus, if you don’t completely pay off your balance by the end of the introductory period, you could get hit with a huge interest rate. 


  • Personal loans could be a low-cost debt consolidation method, particularly if you get a lower interest rate. But if your credit score is in rough shape, you may end up with a rate that’s as much as a credit card. 


  • Home equity loans are also affordable, at least from an interest rate standpoint. But if you aren’t a homeowner or have home equity, this option may not even exist. Or, if you do get a home equity loan but can’t make your payments, you could lose your house. The same applies for cash-out refinances as well.


Is Debt Consolidation Worth It?

If you find yourself wondering how you’re going to afford next month’s bills, debt consolidation is a worthwhile option to reduce your monthly expenses. Record-low mortgage rates might make cash-out refinances and home equity better alternatives, too. 

According to the Motley Fool, how well a debt consolidation program would work for you depends on whether or not:


  • The sum of all your debts (aside from your mortgage) isn’t more than 40% of your income
  • You could be eligible for a 0% credit card or low-interest loan
  • You can consistently afford monthly payments with your current revenue stream
  • You have a strategy to avoid getting into debt again


In many instances, debt consolidation is the figurative light at the end of the tunnel. For example, if you get a personal loan with a three-year term, you know that you will be debt-free by the end of that term — provided you stay on top of your payments and practice responsible spending habits. On the other hand, paying the minimum on your monthly credit card statements will leave you in debt for years due to ever-growing interest payments.

You have enough on your mind right now. You don’t need the added stress of paying down debt over your shoulders, too. Debt consolidation can help you streamline your finances and get them back in shape, as long as you do your due diligence before selecting a strategy. Assess the pros and cons of each method against your situation so you can get the most out of whichever debt consolidation program you pick.

When Debt Consolidation Is Not Worth It

As valuable as debt consolidation can be for some, it isn’t for everybody — namely those who have trouble managing their spending habits in the first place. If you are a frequent impulse shopper, debt consolidation won’t change these bad habits, leading you to the same situation down the road. 

Secondly, this option may not be right for you if you have a massive amount of debt that even smaller monthly payments can’t help. Alternatively, if you have a more manageable amount of debt — as in, you can completely pay it down within the next six to 12 months — debt consolidation won’t save you very much and may not be worth the trouble. 

In these cases, consider tried-and-true strategies like the debt snowball or debt avalanche. But if the amount of money you owe exceeds half of your annual income, debt consolidation may be your best bet. 


  • Backman, Maurie. “Could Debt Consolidation Help You During the Pandemic?” The Ascent, The Ascent, 15 Oct. 2020,
  • Jayakumar, Amrita. “What Is Debt Consolidation, and Should I Consolidate?” NerdWallet, 2 Sept. 2020,