Wiliam Mwangi

Debt consolidation involves taking a loan to repay outstanding debts in full so that you are left with a single repayment to make rather than multiple. Managing multiple repayments at the same time can be a hassle. Consolidating your debt brings all your debts under one repayment plan and potentially saves you money by getting you lower interest rates. Debt consolidation brings maximum benefits when done on high interest debts since it dispenses them in exchange for a lower APR loan, thus saving you money.

In this article, we will discuss some of the loans and credit facilities that make most sense to consolidate and some approaches that fit each type of debt.

1. Credit Card Debt

Credit card debt can be very deceptive because the principle amount over the long term is not very obvious as is the case with other loans. Many people maintain a year-round credit card balance by using their cards to make purchases and pay bills rather than using their salaries. Financial experts recommend paying back your credit card balance in full every month. Credit cards attract very high interest hence if you are holding really high balances, you might be digging yourself into financial trouble. A debt consolidation loan or low interest personal loan can help you to dispense of them in full. This opens a clean slate with the credit bureau in terms of credit utilization, and this will see your credit score rise if you use your credit card prudently. Another option that you can use as a holder of multiple credit cards is credit transfer. This process allows you to transfer your balances and limits under one credit card, sometimes with very few charges. Transferring your balances to the card with the lowest APR may benefit you in many ways.

2. High interest personal loans

High interest unsecured loans are a common pitfall for people looking to extend their financial rope a bit more, but they often lead to a debt trap. If you find a loan with better APR and terms, you may be able to save money by taking it on to pay back the higher interest debt. This is particularly possible if you have been keeping up with your payments and gained a few credit scores over the term of your original loans. Loans that have been passed on to a collection agency tend to accrue punitive terms, and consolidating them makes great financial sense. Debt consolidation agencies, credit unions and some private banks might also be able to offer lower interest loans to clear your outstanding debt.

3. Student loans

The cost of putting yourself through college is notoriously high in America, leaving many students with multiple burdensome loans by the time they leave school. Although student loans come with relatively friendly terms, when they have accrued to high levels, getting a debt consolidation can help open up your credit channels. Sometimes, students graduate with over ten loans which all need to be serviced within a short period. If your dispensing account is unable to remit the payments during a single month, multiple loans are reported to the credit bureau as defaulting. By consolidating them however, only one such entry will be made.

There are several channels that you can use to consolidate student loans. The Federal Direct Consolidation Loan program is specifically aimed at federal loans though interest rates are almost always higher than the student loan rate. With private lenders, there is a slim chance of getting a consolidation loan or one with a temporary waiver on interest and penalties until you get a stable source of income. Although a student loan consolidation loan will not necessarily increase your credit score, it comes with many benefits that allow you to keep up with your debt more easily.

4. Utility and medical bill debts

It is possible to use a debt consolidation loan or personal loan to pay outstanding balances on your bills. Utility and medical bills are not revolving debts, therefore, there will be little benefit to your credit score. However, paying them off may be necessary to avoid having services like water, electricity and cable disconnected. One inherent advantage of utility bills is that they do not attract interest. Many people fall into the temptation to continually use credit cards or other loans to pay bills when times are hard. This may create a dangerous cycle that is hard to break. Many federal, corporate and non-profit packages exist to help you catch-up with your utility debts.


1. https://southfloridareporter.com/3-types-of-debt-you-can-consolidate-and-how-to-make-consolidation-work-for-you/
2. https://nowfinance.com.au/what-types-of-debts-can-be-consolidated/
3. https://www.moneymeters.org/debt-consolidation/which-debts-can-be-consolidated.php
4. https://www.careonecredit.com/what-debt-can-be-consolidated#
5. https://www.debt.org/students/loan-consolidation/
6. https://www.incharge.org/debt-relief/debt-consolidation/

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