debt consolidation.

Melissa is a mother of 2, lives in Utah, and writes for a multitude of sites. She is currently the EIC of and writes about health, wellness, and business topics.

There has been a lot of talk about debt consolidation in recent years. For those who don’t know, debt consolidation is the process by which you consolidate all your debts i.e. combine them into a single and more effective whole, to pay them off and be done with them. On paper at least, this seems like something that is completely doable. It should be remembered that debt consolidation is part of a package deal of money management tools that you can employ.

What does this mean? It’s one thing receiving money to pay off your debts in full, it’s another keeping those debts at bay. Ever heard the term repeat offenders? These are people who keep doing the wrong thing because they haven’t learned their lesson. The whole process of debt consolidation is only effective insofar as the debtor understands how to keep debt at negligible, or manageable levels.

Before we get into the inner mechanics of debt consolidation practices, it’s important to understand precisely why people get into debt in the first place. There are several theories behind this phenomenon. Some people are inclined to seek comfort through their purchases of goods and services. The problem with this is that debt continues to grow every time we feel good about making a purchase. The deeper psychological reasons leading to increased purchases should be addressed. If the reasons for increased expenditure are not dealt with, it is unlikely that any debt reduction, debt management, or debt consolidation services will work.


Another reason why people spend excessively and end up in debt is living beyond their means. We may feel that access to credit is a green light to use and abuse the credit facilities available to us. Once again, the golden rule is as follows: Live Frugally. When somebody lives beneath their means, they are never overextending their finances and placing unnecessary stresses on their personal, financial, and emotional lives. Untenable debt is a deal breaker. Nothing good emanates from high levels of debt and excessive repayments every month.


What About Consolidating Debt?

This leads us to our next point on debt consolidation. What exactly do you need to know about debt consolidation before you seek a remedy for this overbearing dilemma? For starters, you need to understand that you’re not alone in this quagmire. According to the Federal Reserve Bank, household debt in the US topped $12.35 trillion by the end of 2016, and that figure continued to grow in 2017. The interest that we pay on our debt is driving the profitability of big banks and financial institutions.

The stats further suggest that 75% of Americans have stressed about money issues within the last month. 9/10 Americans are as stressed about money this year as they were last year, and a quarter of all Americans are constantly stressed about money. This does not bode well for a productive and peaceful society. That’s where debt consolidation comes into the picture. If you have outstanding credit card bills, and they are mounting every month, it’s important to get on top of things. Staying abreast of these challenges is especially important, given that there is no merit in paying down debt, only to rack it up a few weeks later.

Debt consolidation will combine all similar debt such as credit card debt into a single amount and a single payment. Fortunately, this new line of credit – a loan – is offered at a lower interest rate than the prevailing credit card rates. It’s like reaching for all your debts, and dragging them into the same box, sealing it up, and paying it off with a single loan at a lower interest rate. Now, you only have to deal with the one repayment. Provided you can get approved for that single loan, you’re already in better standing. Remember, there are a few ironclad rules when it comes to making payments on your outstanding debt:

  • Always pay off high interest debt first. That means the high APRs are target #1.
  • If you seek credit counseling services, stick to their suggestions. Do not deviate.
  • Once you’ve paid off your debts, put your credit cards on ice literally or metaphorically. You certainly don’t want to rack up debt all over again.
  • Not all debt is bad debt. Credit card debt is bad, but mortgages and student loans (if you can find gainful employment) are geared towards lifestyle improvement.
  • Understand why you got into debt in the first place and change your behaviour.

Debt settlement is not the same as debt consolidation. The former works with you and the creditor to come to an agreement to pay off your debts. Your credit score will take a hit, and you could lose big-league.