Reduce debt stress: How (and when) to consolidate debt


The emotional weight of debt can be overwhelming, but debt consolidation may be able to reduce the burden and even save you money—if it’s right for you.

The uncertainty of 2020 has taken its toll. But amidst a turbulent year, many Americans are finding ways to reduce debt stress.

A recent study showed that, since the COVID-19 pandemic, debt is down and credit scores are up on average.Disclosure 1 Many people have become more wary of debt, so they’re accruing less of it, and those who can afford to are taking the opportunity to pay down their existing debt. 


of Americans are at least somewhat uncomfortable with the amount of debt they carry.

Source: Q2 2017 Truist National Financial Confidence Poll Debt Management Insights Module

Whatever your situation, it’s always a good time to reduce debt stress where you can. And while there are different solutions for tackling debt, for many, a smart path forward is debt consolidation.

Consolidation = one monthly payment, one rate

Debt consolidation is exactly what it sounds like: combining a series of smaller loans into one larger loan. Ideally, the consolidation loan also comes with a lower interest rate compared to your existing loans. When times are tough, the less stressful information we have to process, the better. With so many decisions to be made—especially about which debt to pay off first—debt consolidation can provide a simpler way to repay multiple loans and make it easier to view your financial situation holistically.

Perhaps one of the biggest positive effects of debt consolidation, however, is the liberating feeling you get when you shift from having four or five monthly payments to just having one. It can help you free up cash flow for other priorities, maintain a positive mindset, reduce debt stress, and ultimately lift some of that weight off your shoulders. Plus, it can give you a fresh payoff date, which can both motivate you and provide peace of mind.

Is debt consolidation right for you?

Even though debt consolidation can provide a boost for many, that doesn’t mean it’s for everyone. If you’re on track to pay off your debt within the next year or so, consider other payoff strategies, like the "snowball” or “avalanche” approaches.

If your debt is less than 40% of your gross income and your credit is good enough to get you a 0% balance transfer or low-interest debt consolidation loan, consolidation could provide some benefits.

For instance, if you have several credit cards with interest rates in the 18% – 24% range, but you make regular on-time payments and you have a good credit score, you may qualify for a debt consolidation loan in the 7% – 10% interest range.

On the other end of the spectrum, if your total debt is more than half of your income, consolidation may not be the best option. Consolidating too much debt could land you with a large monthly payment with less flexibility than your current situation, but it depends on the type of debt you’re carrying and your unique circumstances. Consider seeking help from a credit counseling agency if you have a high debt load and are unsure about what to do.

What kinds of debt can be consolidated?

While credit card debt is one of the most common forms of debt that people choose to consolidate, other forms of unsecured debt are also eligible, such as medical debt, personal loans, store cards, gas cards, and payday loans. Student loan debt is also often eligible for consolidation, though it often requires a specialized program to do so—and consolidating federal student loans may void certain benefits, like forgiveness options

The first step to a new beginning

In a way, debt consolidation can feel like a chance to reset your finances. But it’s important to remember that, while debt consolidation offers short-term benefits, it may not be your best long-term solution. Before applying for a consolidation loan, take the time to review your balances, interest rates, and credit score—then run the math and consult with an expert to see if you’re saving in the long run versus prolonging your debt payoff journey.

Ideally, we should all try to avoid high-interest debt by developing a plan to help us spend within our means through budgeting.

Learning to manage your debt is a step forward on the path to financial confidence.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.