Should I Consolidate Debt?

By Miriam Caldwell. Money in Your 20s Expert

Miriam Caldwell is a freelance writer with a specialty in personal finance. She believes that you can lay a solid foundation by starting to manage your finances in your twenties.

Question: Should I Consolidate Debt?

However, people often consolidate debt without really looking at what caused their debt to grow to such a large size.

Once they have the lower consolidation payment, they continue to spend at the same rate, and quickly add to the credit card balances that they just paid off. Generally within two to three years, they have the same amount of credit card debt that they did before they consolidated their debt, plus the consolidation loan. This is when people really begin to feel overwhelmed by their debt. The key to getting out of debt is to stop borrowing money while you are paying down your debts.

If you are committed to getting out of debt, and you will stop using your credit cards. it may be worth it to save money on the interest rates.

You should close all of your credit cards except the oldest when you do this. However, you should make sure that you and your spouse are able to stick to a budget. In fact you should give yourself three to four months of following a budget and committing to that pattern before you take out the loan. If you decide to take out a loan, make sure you choose a good consolidation loan with a set interest rate and payments you can afford.

It is always a good idea to consolidate your student loan debt. You can consolidate these loans when you graduate.

Continue Reading Below

The student loan interest rate fluctuates, and you should try to lock in it when it is low. You will have the option to stretch your loan out, which will lower your monthly payment, but increase the amount of the interest you pay over time. If you do take advantage of student consolidation loan, you should still try to pay off your student loan early.

It is important to look at the whole picture when you are trying to manage your debt. Your ultimate goal should be to get out of debt. This means making sacrifices in your spending and savings habits. The option to consolidate debt will not solve all of your debt problems, but if it is handled carefully it may help you to save on interest over time. Only consider this option if you are one hundred percent committed to making lifestyle changes and close your other cards when you take out the loan. You should never consolidate your debt into a home equity loan, because it puts your home at risk if you were to default on the loan. It is a dangerous options, and you should be able to find an unsecured consolidation loan.