Debt consolidation allows borrowers to roll multiple old debts into a single new one. Ideally, that new debt has a lower interest rate that makes payments more manageable or lets borrowers pay off the total more quickly.

Many people try debt consolidation, but not all emerge better off.

Some borrowers wind up in worse shape, either because they run up their credit cards again or because their debt remains overwhelming despite the better repayment terms. Others succeed because debt consolidation is part of a bigger plan to gain control over their finances.

So the first step in debt consolidation is simply to consider whether it will actually work for you. There are many ways to consolidate your credit card and other debt, such as with a 0% APR credit card, a home equity loan or a personal loan. The option that best suits you will depend on your credit, available cash and other aspects of your financial situation, as well as your personality.

Should you consolidate your debt?

Ask yourself a few questions to see if debt consolidation is really what you need:

Am I serious about paying off my debt? Consolidation works best as part of a larger plan to become debt-free; it shouldn’t just be a way to buy some breathing room.

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If you are consolidating debt just to get a lower interest rate without really knowing how you’re going to pay the debt off, then you are simply moving the problem around instead of facing it. You’ll have to change the behavior that got you into debt in the first place.

Is my debt load manageable? Take a close look at your income and expenses and ask:

  • Can I realistically pay off my unsecured debts (credit cards, personal loans and medical bills) within five years?
  • Is my total unsecured debt less than half my gross income?

How can I safely consolidate my credit card debt?

Answer: Consolidating credit card debt depends on your situation. If you are thinking about debt consolidation, you might want to first consult a non-profit credit counselor.

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Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments.

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If you are thinking about debt consolidation, you might want to first consult a non-profit credit counselor. Many people get into debt because they can’t afford to make monthly debt payments on top of paying for daily living expenses. If you’re not sure of the best way to address your debt, a credit counselor can help you explore your options.

Tip:

You can also reach out to your individual creditors to see if they will agree to lower your payments. Some creditors might be willing to accept lower minimum monthly payments or change your monthly due date because they would rather get paid less on a regular basis – than not get paid at all.

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Here’s what you need to know if you are considering these options for consolidation:

Transferring different debt balances to one credit card account

Many credit card companies offer zero-percent or low-interest balance transfers to allow you to consolidate your debt on one account. This will allow you to make one payment and sometimes will result in lower payments.

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Understanding your options for consolidating debt on your own

Not all debt relief options require you to hire a specialist or enroll through a company. In the right financial circumstances, you may be able to use a do-it-yourself debt consolidation option to address your debt problems on your own. However, you have to be careful when using one of these options; if you aren’t, you can worsen your financial distress.

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DIY Consolidation Option #1: Balance Transfer

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Your first option for do-it-yourself debt consolidation is a balance transfer. This is where you take the balance on one or more of your high interest credit cards and transfer it to a card with a much lower interest rate. You can combine multiple credit card debts onto a single credit card with significantly lower interest, so you only pay one bill each month that is often much lower than what you pay on your debts individually.

To make a balance transfer work successfully, you need to have a strong enough credit rating to qualify for the right balance transfer credit card. If you have extremely strong credit scores, then you may even be able to apply for a card that offers 0% APR on balance transfers for an introductory period. This allows you to lower the balance on your debt quickly, because 100% of the payments you make go to paying off the debt rather than accrued interest.

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There are two common pitfalls you need to avoid if you are using this as a debt relief option:

  1. If you do not have strong credit, you will not qualify for an interest rate that is low enough to provide a benefit. If the interest rate is too high, you can actually make your debt problems even worse. If you have bad credit or even fair credit, you may need to consider other options for debt relief.
  2. You must commit to avoiding credit until you pay off the balance transfer amount in-full. With zero balances on your other credit cards, you will be tempted to start spending on credit. However, if you start accumulating debt on these high interest credit cards before you have the transferred debt paid off, you are only increasing your debt burden instead of decreasing it, thus making your situation worse.

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DIY Consolidation Option #2: Unsecured Debt Consolidation Loan

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Another do-it-yourself debt consolidation option is to consolidate your high-interest credit card debts with an unsecured personal debt consolidation loan. This is where you take out an unsecured loan and use the money to pay off your high-interest credit cards. With the credit cards paid off, the only debt you have to pay each month is on the loan. Once more, your goal is to get a low enough interest rate to pay less each month but get out of debt faster since the interest doesn’t accrue as fast.

As with a balance transfer, much of your success in making this DIY debt consolidation option work is having the right credit scores to qualify for a good interest rate. If your credit scores are low, you will either not be approved at all or the interest rate will be too high to provide the benefit you need. Again, you can actually make your financial hardship worse if you use an unsecured debt consolidation loan in the wrong circumstances.

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Moreover, you need to make sure you are not increasing your debts while you work to pay off the loan. If you use your credit cards before you have the unsecured loan paid off, you are increasing your debt burden rather than decreasing it, and you could end up in worse financial distress than when you started.

DIY Consolidation Option #3: Secured Debt Consolidation Loan

The final do-it-yourself consolidation option is similar to the second option, but you would take out a secured loan rather than an unsecured loan. A secured debt consolidation loan is also referred to as a home equity loan because you put your house up as collateral in case you don’t pay what you owe. While you can get a lower interest rate with weaker credit (because the loan is secured), most financial experts warn to not use this option.

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Credit card debts are unsecured debts; this means, as much as your creditors can threaten and harass you with collection, they cannot take your home or other assets without a court order, such as a bankruptcy decree. A home equity loan is a secured debt, so if you fail to pay the loan in-full, the creditor can take your home. The tradeoff is too great and puts your home at risk just so you can pay off your credit cards.