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Debt Consolidation: Where To Get Started

Jessica Cotzin Updated: June 26, 2023 • 6 min read
A bunch of bills that can be consolidated

Debt consolidation is a financial term that’s thrown around quite a bit. Aside from big purchases, refinancing, or taking out a mortgage, many lenders offer borrowers the ability to take out a loan just for consolidating debt. So what does debt consolidation mean, anyway, and where do you start?

In short, debt consolidation is a popular strategy for handling debt and the process involves taking out one large loan to pay off your other loans. Essentially, you’re rolling all of your debt into one nice, tidy loan.

In this article, we’re going to review everything you need to know about debt consolidation including how it works, when it works and when it doesn’t, and the key to navigating the process successfully so you’re fully prepared to move forward.
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How does debt consolidation work?

Depending on your financial profile, which includes things like your credit score, credit report, and overall financial health, the idea is to secure a debt consolidation loan that is lower in interest than your other debt sources, meaning you’ll pay less in the long run.

There are two main ways you can go about consolidating debt:

1. Using a debt consolidation loan

This is the most common route, which we’ve already touched upon. It involves taking out a fixed-rate loan to pay off your other debts. Just like with other loans, you’ll pay back the loan in monthly installments over a specified period of time.

2. Using a balance-transfer card

A balance transfer credit card allows you to move all of your debt onto a credit card. It begins with a preliminary 0% interest rate and gives you several months to make monthly payments without being charged interest. With this method, it’s important to understand what the interest rate will be after the 0% introductory rate ends.

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When is debt consolidation a good idea?

Debt consolidation can be an excellent strategy to tackle your debt, but it isn’t for everyone. Consolidating debt is generally a good idea when you meet a few criteria.

  • You have a plan in place to get your finances under control and you aren’t going to keep running up your debt.
  • You’re able to make your debt consolidation payments on time.
  • You have good enough credit to get approved for low-interest rates (lower than what you were paying on your other debts).
  • The total amount of debt you have isn’t over 40% of your gross income. Keep in mind that this doesn’t include mortgage debt.

When is it a bad idea?

Remember when we said debt consolidation isn’t for everyone? Basically, if you do not meet the above criteria, it’s probably not a good idea to consolidate your debt because it won’t do much (if anything) to improve your financial situation. So if you have poor credit, tons of debt, and are continuously running your debt up further, debt consolidation will not provide a solution for you.

With poor credit, it’s unlikely that you’ll be able to secure a lower interest rate. Additionally, it’s smart to first address your spending habits and get your finances in order so that you’re easing up your debt instead of adding to it.

With that said, you probably needn’t bother with a debt consolidation loan or 0% balance-transfer card if you only have a small amount of debt that can be paid off within six months or so. In this case, it’s best to work on paying down your higher interest debt before tackling your other debt sources so you pay less on interest.

The 6 keys to successful debt consolidation

It’s never too late to start working on your financial health. After all, that’s why you’re here reading this article! Now that you know a bit more about debt consolidation and when it can work for you given your situation, let’s review the keys to navigating debt consolidation successfully.


1. Focus on your spending

While this may appear to be an “easier said than done” piece of advice, you can absolutely shape up your finances by establishing a budget and focusing on your spending habits. It’s important that if you decide to consolidate your debt, you aren’t racking up more debt on your credit cards in the process.

Even if it requires sitting down with a financial advisor, create a budget for yourself that does not push you to spend more than you can. Look at your income, your total debt, how much you’re spending, and your monthly payments.

2. Limit your credit card usage

While you don’t want to close out any of your credit card accounts — that could hurt your credit — it is advisable to stick with using just one or two. This will help you keep track of how much you’re spending, as you can easily review online or paper statements on what you’ve been charging to your card.

It can be easy to rack up debt when you’re using multiple credit cards, so consider putting some of your cards away or even cutting them up (you can always re-order a card later).

3. Put in the time to properly research

Another key to successful debt consolidation is to put in the time it takes to really research your options. Whether you decide to opt for a 0% balance-transfer card or a debt consolidation loan, you’ll find that there are simply tons of lenders out there all vying for your business.

Take your time in researching multiple lenders so you can compare rates. Most lenders will allow you to get pre-approved — which typically runs a soft credit check and not a hard credit check — so you can get an idea of the rates you qualify for. This will make it easier to compare offers and rates from different lenders.

When choosing a lender, you also want to make sure you can afford your debt consolidation monthly payments so you aren’t placed under financial strain.

4. Pay off high-interest debt first

If you’re unable to obtain a debt consolidation loan to pay off all of your debt sources, that’s ok! You can still use it smartly by paying off your highest debts first. This will save you money in the long-run.

5. Don’t miss your payments

Remember, you’re consolidating your debt as a way to strengthen your finances. Making your monthly payments on time every time is crucial to this endeavor, so don’t be late! If you’ve fallen into the habit of missing payments here and there, consider setting up autopay, which many lenders offer. This will automatically make payments directly from your bank account.

You can also set-up a payment alert to help keep you on track. Making payments on time consistently will help your credit score and credit report, so stay on top of it.

6. Pay more than the minimum

As long as your debt consolidation loan does not have a prepayment penalty fee, make an effort to pay more than the minimum monthly amount if you can. This will be applied to the principal balance which could result in you paying off your loan faster and paying less in interest.

Next time you get a work bonus or find yourself with a little extra money, consider paying more than the minimum.


Debt consolidation is a financial buzz word for a reason — it can be a great strategy to tackle debt and put you in a better position financially. If you have decent credit that can earn you a lower interest rate than what you’re already paying on your debt and work on getting your spending under control, debt consolidation can be the perfect solution.

Start by creating a budget, limiting your credit card usage, and comparing rates from lenders to see what you qualify for to determine if debt consolidation is the best path for you.

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Written by Jessica Cotzin

Jessica Cotzin is a writer and the Lendstart authority on small businesses and personal loans. She has been writing about personal finance and the loans industry for a number of years, and holds a bachelor’s degree in journalism from Florida Atlantic University.