Nine Reasons To Consolidate Debt

Published Tuesday, March 12, 2013 at: 7:00 AM EDT

Now that another year is under way, you might make a “New Year’s Resolution” to put your financial house in order—and a great place to start is to resolve to pay down the debt on your personal balance sheet. If you owe money to multiple lenders, you may find it advantageous to consolidate those obligations with a single creditor.

What are the benefits of debt consolidation? Here are several to consider.

1. No muss, no fuss. You can make just one monthly payment instead of having to sort through an avalanche of statements and write checks or make electronic payments to many credit card companies or other lenders. Simplicity and convenience are often cited as the main reasons for consolidating.

2. Better recordkeeping. It’s easier to track payments to one creditor than to collect information from several sources. You’ll get a better handle on how your debt is affecting your cash flow.

3. Less stress. Trying to figure out what you have to pay, and how to fit it into the family budget, can turn into a nightmare. And consolidation will save you from being harassed by collection agencies.

4. Lower interest rate. Debt consolidation makes the most sense when it saves you money. Try to arrange terms so that your new interest rate is lower than the average rate for all of your old loans.

5. Longer repayment schedule. If the new loan lets you stretch out payments longer than the terms of lots of small debts, it may be easier to balance your family’s budget.

6. Improved credit history. Having bad credit can hinder your ability to borrow or to qualify for preferred terms on new loans. Consolidating debts and attacking the outstanding balance will generally help your credit score.

7. Get a plan. If you work through a debt consolidation company, it will help you address your situation in an organized fashion, paying off old debts while getting a reasonable interest rate and repayment schedule for the consolidated loan. Or you could develop such a plan on your own.

8. Avoid late fees. Typically, fees for late payments will be reduced or waived if you can show that you have a reasonable plan for consolidating and paying down your debt.

9. Set yourself free. Finally, debt consolidation provides an opportunity to get out from down under the obligations of multiple loans. Then, if your financial situation improves, you can pick up the pace of repayment to lift your debt burden as soon as you can.

Debt consolidation isn’t a cure-all; it won’t solve all your financial problems. But it can start you on a better path.

This article was written by a professional financial journalist for McCarthy Asset Management, Inc and is not intended as legal or investment advice.

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