Should you consolidate your debt?

12/30/2013

Ask the Experts: Should I consolidate my debts?

I have 3 cards that total $25,000. Wouldn't it be better to consolidate the balances into one loan versus tackling one at a time? -Mary

Hi Mary,

This is a great question, and the answer is…probably.

In many cases consolidating those three cards into one payment is going to make things easier for you. There are, however, some circumstances where consolidation isn’t in your best interests. Here are some questions to ask yourself before you decide to consolidate.

Am I concerned about my credit score?

Assuming those three accounts are in good standing, closing all three and replacing them with a fourth, completely new account is going to hurt your credit score. That’s because the length of your credit history is a factor in your score, so closing those three established accounts will hurt, at least initially.

Am I saving in the long run?

A lot of consolidation deals offer good introductory rates, followed by less than great rates once the introductory period has expired. Take the time to sort out how much interest you’ll pay on each individual account if you paid them separately, and then calculate how much your consolidation loan would cost you once it was paid in full. You can use our balance payoff calculator to help you get an accurate picture.

Can I handle the new payment?

Pushing all three debts into one loan means you’ll end up with one payment, which is good, but it could be a sizable payment. It should help simplify your budgeting, but it may cost you some flexibility. Be sure to draw up a new projected budget to see how the consolidated payment will impact you.

Once you’ve answered these questions you’ll probably have a pretty good sense whether or not a consolidation loan is right for you. Ultimately, a consolidation loan should help you achieve your financial goals. If you’ve looked at all the angles and believe that it will help you get where you want to be, then go for it.

Good luck!

Learn more about Debt Consolidation

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

Better Business Bureau

MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
Financial Counseling Association of America

MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
Trustpilot

MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
Department of Housing and Urban Development

MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
Council On Accreditation

MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
National Foundation for Credit Counseling

MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.