What is the Best Way to Consolidate Your Debt?

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  • Written By: Jessica Hobby
  • Edited By: Heather Bailey
  • Last Modified Date: 18 January 2020
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Many companies and individuals use debt as a way to buy things they do not have the money for at the time of purchase. Although there are cases where debt can be a tool, more often than not the costs outweigh the benefits of borrowing money. Although most financial experts will agree that too much debt is not healthy for your financial future, there is disagreement about the best way to consolidate your debt. One option is simple consolidation through a loan or credit counseling company, while another option is through paying off your debt in a systematic way.

A debt consolidation loan can be a great tool to consolidate your debt if you use it responsibly. Some people fall into the trap of paying all their debt off with a loan and charging it right back up again, which puts them in a worse situation than when they received the loan. You may apply for a secured or an unsecured consolidation loan. A secured loan requires some sort of collateral, such as a car or your house for the loan. If you do not pay back the loan, the bank will take ownership of your collateral. Even though you are putting your personal property at risk, you will usually get a better interest rate with a secured loan.


If you apply for an unsecured loan to consolidate your debt, your credit will need to be relatively good or you will need a creditworthy co-signer. You will not be able to borrow as much money with an unsecured loan and your interest rate will be higher than a secured loan. When considering an unsecured loan, you should really go over the numbers carefully because you may be increasing your monthly payment because of higher interest rates.

There are numerous credit counseling companies that advertise their ability to help you get out of debt. Most of these companies are scams and promise things you can do yourself. For example, they promise to negotiate with credit card companies to lower your monthly payment. If you communicate with your credit card company, you will be able to negotiate payments yourself.

Some credit counseling companies take one low monthly payment from you with the promise that they will send money to your collectors. Many times you end up in a worse situation because the company does not keep the promise it has made. It is important to note that working with a credit counseling firm does show up on your credit record and looks almost as bad as a bankruptcy. These companies will help you consolidate your debt, but not always effectively.

One of the safest ways to consolidate your debt is by paying it off through increasing your payments. There are two different orders that you may pay off your debt. Paying off your debts in order of their interest rates is the first method. Make minimum monthly payments on all your payments, but put all the extra money that you have available to the payment with the highest interest rate. When that item is paid off, add that payment amount to the item with the next highest interest rate and keep proceeding until you are debt-free.

The other way to consolidate your debt by paying it off is by paying your debts in order of their size. Make minimum monthly payments on all of your payments, but put all of your extra money to the payment with the smallest total due. Once this is paid off, roll that payment amount to the debt item with the next largest amount. Once again, keep proceeding until you are debt-free.

Whether to use the interest rate or the total debt amount to consolidate your debt by paying it off is a personal choice. Using the interest rate method will possibly take longer if you are not dedicated. Similarly, if your highest rate debt item is a very large debt, it may take a long time to see progress, so you may never reach your goal. Using the total debt amount method will at least show you results faster as you pay small debts off and roll your payments into the larger items.


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