What is debt consolidation? It’s rolling several debts — like credit cards and medical bills — into a single payment at a lower interest rate. Ideally, this is part of a plan to become debt-free.
When should I consolidate? Debt consolidation is a good idea if you can qualify for a lower interest rate that makes payments more manageable or gets you out of debt faster. It’s not a good idea if you are likely to run up debt again or if the debt is overwhelming.
How can I consolidate? Two common ways are balance transfer credit cards and personal loans. What works best may depend on your credit score. If your credit score is good to excellent, look for a 0% balance transfer credit card (be sure to pay off the balance before the 0% period expires to avoid interest). If your credit is average, find a debt consolidation loan with rates lower than your credit cards.
A poor credit score may disqualify you for a balance transfer card or a personal loan at a rate that would reduce your payments. Keep making on-time payments on current debts; that builds credit, which can help you later.
If unsecured debts equal 40% or more of your gross annual income or your debts cannot be repaid in five years, bankruptcy may be the best option.