How to consolidate debt

How to consolidate debt

It all starts with choosing your battles


If you feel pinched making payments on your debts, it may make sense to roll them all into one monthly bill. But bear in mind that while it’s meant to ease your debt situation, you’ll need to qualify for that lower-interest consolidation loan. Here’s how to stack the odds in your favour.

1. Choose your battles

Not all debts are worth consolidating. The most common contenders are high-interest, unsecured consumer debts like credit cards and personal loans. Things like student loans are better dealt with separately as you are eligible for tax credits on interest.

2. Review your budget

You should know how much you can realistically pay per month against your debts. Take a hard look at your expenses and decide what you can spare to pay down your loans. You’ll need to have this figure ready if and when you approach a consolidator.

3. Choose your consolidation method

Now you have some options: You could consider a consolidation loan, take on a secured or unsecured line of credit, or refinance your home. Be ready to show you’re able to afford the payments and bear in mind that any loan request results in a credit inquiry that could lower your credit score. Not ideal. But it may be better than drowning in debt.

4. Get a credit report

Pay a small fee to get your credit score from or (it’s usually under $20; the free report won’t reveal your credit score). If it’s under 650, expect to pay higher interest on a loan. While you’re at it, look for and address any outstanding errors in your report.

5. Start stacking

Putting a dent in your debt-to-income ratio can help you secure a consolidation loan. Use the debt-stacking method: Make only minimum payments on most bills while focusing extra funds on the loan with the highest interest rate. Once that’s paid off, move on to the bill with the next highest interest rate.