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Debt Consolidation: When Should You Do It?


Do you feel like you’re getting behind financially? Are the bills piling up and you’re low on cash? If you’re finding yourself in this situation, you might be wondering when debt consolidation is the answer. Before we answer this question though, it might be easier to discuss when one should not consolidate debt.

When is Debt Consolidation NOT the Answer?

  • If you currently have debt, but have enough income to make the minimum payments, it’s not time to consolidate.
  • If you’ve consolidated before, and now you’re in the same boat again (of not being able to pay your bills), it’s not time to consolidate.
  • If you’re out of work and do not have a sufficient income, consolidating will not help you. Your time would be better spent checking those “Wanted” ads.
  • If your friends claim that they’re saving money by consolidating, don’t believe them and don’t consolidate your debt for this purpose. The consolidation company needs to get paid – they’re not consolidating your debt for free!

How to Avoid Debt Consolidation

If one of the bullet points above describes your situation, then you really don’t need to consolidate. What might work best for you is the almighty debt snowball!

If you are unfamiliar with this term, just think of that initial small snowball (this would be a garage sale, or some way to make some extra cash) at the top of the hill. Then with a small nudge (that first extra payment on one of your cards), that small snowball will begin rolling down the hill, getting bigger and bigger, faster and faster (this signifies the amount of money you’ll be able to put toward each debt payment as you pay off one loan, then another, and another). Soon, that ball gets huge and you’ll be paying more money toward your debt than you pay in rent! That is the power of the debt snowball. Once one debt is paid off, that payment gets applied to the next one, and your payment power keeps building and building!

You might be wondering how you can get your snowball rolling. This could be a garage sale (as I mentioned above), but it could really be anything. Let’s say your friend wants to get his car detailed. Why not offer to do it for him and charge him a little less than the pros? This move could put $100 toward that first credit card bill. It’s as easy as that!

Once you get the snowball rolling, it can really take off in a hurry! Before you know it, you’ll have a few credit card bills paid off and then there’s no stopping you!

When Debt Consolidation Might Be Appropriate

When a person gets their first loan, life seems great! The payments are low, the cash flow is high, and life couldn’t be better! It seems like such a good idea, in fact, that they purchase a few other items on credit, and they get a couple of credit cards. All of the sudden, it seems the same income isn’t going quite as far as it used to.

At this moment, you are spread to thin. More accurately, you have nothing to spread! There’s just not enough money to pay the bills anymore.

If you’re in this situation, make sure to talk with your creditors and let them know what you’re facing. If they understand that you absolutely can’t pay the loan back, they might work with you directly. They might take off some of your interest payment, or they might lower the rate of interest that you’re currently paying.

If your creditors are willing to work with you, then there’s no need to consolidate. You’ve effectively done that yourself. But, if this method does not work and your bills keep stacking up, then it might be time to call up a debt consolidation company.

Don’t expect to pay less overall than what you owe, but this process might make your payments manageable. Just remember that no one should ever consolidate their debt twice. Debt consolidation is a method to get out of debt, not to accumulate more stuff!

Have you ever thought about debt consolidation? Have you actually gone through the process?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. This is great advice especially on when not to consolidate. People need to be ready to make a serious change if they want consolidation to work for them.

    • You’ve got that right. Consolidating debt is not an answer to all your debt problems. One must still get serious and pay off their debt with purpose.

  2. Great job at illustrating that most often consolidating doesn’t mean owing less – just a smaller payment to help you pay it each month. This must be a difficult situation and I hope all of your readers can avoid it all costs.

    • Yep. The amount owed is most likely more! It’s best to try to work through the debt by yourself.

  3. Good points…here are my two cents. Sometimes it makes sence for someone to refinance to lower the overall monthly payments. One couple refinanced thier home after 10 years. They went from a 30 year mortgage to a 20 year mortgage. The change they made saved them $2k per year and did not extend the original mortgage time.

    When couples have trouble building an emergency fund, a mortgage refinance which lowers the overall monthly payment will end up reducing the overall amount needed. A $1k mortgage reduced to $800 would reduce a 6 month emergency fund requirement by $1200.

    I’m beleive you make good points. Mortgage companies don’t refinance for free, but I’m a believer in reducing your monthly obligation as far as you can and then over-paying it.

    • I’m ok with refinancing, I’m just not always the biggest advocate for consolidating debt.

  4. Whichever path you choose, the key it to have a plan, some plan, any plan. And be committed to stick with it. For some people it is less important which plan, and more important just to do something and keep doing it!

    • Very true. Without a plan, nothing will change. At least if you have a plan to get out of debt, you’ve got a chance.

  5. One great thing about this tactic is that it just feels better. Knowing there is 1 person to pay and you know the exact amount, its just a nicer way of doing things and much better than been hounded by a load of people after money.

    • I suppose so. One just has to be careful not to spend their freed up cash after the consolidation though.

  6. In my experience, one awesome way to do a debt consolidation is to pay off and wrap up everything into one new home equity loan as a first mortgage. You will get one payment per month, it will be the lowest payment possible, and if you do it right and treat it like a debt snowball you can pay it off much faster than you would have before.

    I helped people do that in my days working in a bank a few times and it saved them a lot of interest payments.

  7. Great article. I’m only going to disagree with one thing. The first bullet point under when not to consolidate. Someone could be able to afford the minimum payment on a credit card but may still benefit from restructuring their debt to an installment loan, where they’ll have everything paid off by a specific date. You very well know that minimum payments aren’t guaranteeing your debt to be reduced. Having said that, still a very informative article.

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