When you are thinking about debt consolidation, you need to factor in your personal financial situation and the type of debt consolidation being considered. Consolidating debt can help reduce monthly payments but it could mean a lengthier term, which means paying more interest overall.

 

Debt consolidation can be a good idea if your total debt minus your mortgage doesn’t exceed 40% of your income, your credit is good enough to qualify for a low interest loan, you have cash flow consistent to cover payments toward your debt, and you have a plan to prevent getting into debt again. For many people, debt consolidation can reveal the light at the end of the debt tunnel. If you take out a loan in order to consolidate with a three-year term then you know your debt will be paid off in three years as long as you make your payments and don’t overspend. Making just minimum payments can mean it takes years to pay off debt.