4 ways debt consolidation could improve your life

By Dana George

Reviewed by James Heflin

Jun 27, 2024

Read time: 4 min

Woman with calculator and dairy checking ways debt consolidation could improve her life

Key takeaways:

  • The ideal debt consolidation loan carries a lower interest rate than the debt you want to get rid of.

  • The faster a debt is paid off in full, the less interest you're likely to get stuck paying.

  • When you spend time getting out of debt, it’s also a time to reframe and improve your money habits.

If you're in debt, no one has to remind you. You know it. What you might like to hear instead are practical ways to rid yourself of debt without wrecking your budget. That was the case for me when I was deeply in debt. I didn't want to be preached at about the foolishness of carrying revolving debt from one month to the next, or reminded to live below my means. 

I knew all that. I just needed a sensible way to get rid of the debt I had. Fortunately, I learned about four ways debt consolidation can help, as long as it's used strategically. 

1) Debt consolidation could save you money (sometimes, big money)

The average credit card interest rate hovers just above 21%. Let's say you've maxed out a single credit card, and now owe $10,000 to the credit card issuer. You're faithfully making a monthly payment of $250, but you feel like you're getting nowhere. Because of the way compound interest and revolving debt works, it will take 70 months (5 years, 10 months) to pay off this debt, and you'll pay $7,423 in interest. 

Now imagine that you're approved for a consolidation loan with an interest rate of 12%, and you choose a 60-month repayment term. Your monthly payment will be $222.44, and you'll pay $3,346 in interest. Already you’re looking at a lower payment and faster payoff.

However, if you would rather get the debt wiped out even faster, you could choose a 48-month term loan. Your monthly payment would be $263, which is only $13 dollars more than you’re paying on the card now. But you’ll have the loan paid off in four years and pay only $2,624 in interest. 

Either way, if you qualify for a lower interest rate, consolidating your debt could save you money. 

2) Debt consolidation could serve as your financial GPS

If you want a consolidation loan to work for you, there's one simple trick: Avoid taking on new debt while paying off the old debt. In other words, now that your credit card is paid off, don't make any new charges.

Just as the GPS on your smartphone or in your car instructs you where to go, the months spent paying off a personal loan can teach you how to master money management—including life without accumulating new debt. You could also learn what’s the most realistic household budget for you, develop mindful shopping habits, and appreciate the value of putting money away for a rainy day.

It can be really tough at first. After all, new habits are rarely developed overnight. However, the longer you stick with new money habits, the more natural it begins to feel.

3) Debt consolidation shines a light at the end of the tunnel 

What can be particularly discouraging about being in debt is the heaviness of trying to think about the future. It can be hard to imagine just how long it will take to dig out. Sure, you can use a debt calculator to get a rough idea, but credit card interest rates are variable (they can change at any time). 

The interest rates on consolidation loans are fixed, meaning they never change. The rate you pay on day one is the rate you pay throughout the life of the loan. There’s an end in sight, too. If you choose a 48-month loan term, you can know with certainty that the loan will be paid in full in 48 months. 

There's something very freeing about knowing there's light at the end of the tunnel and that you’re actually moving toward it.  

4) Consolidating gives you time to reframe

I don't ever want to be in over my head financially again. That said, I probably learned more about money during my time spent paying off old debt than I had in my entire life. Because I focused on only buying things I could pay cash for and saying no to impulse buys, the years spent getting out of debt helped reframe the way I think about money. 

At one time, if I saw an expensive handbag I was wild about, I probably would have splurged on it. No matter how lovely it was, though, I would eventually grow tired of it, hang it in my closet, and rarely take it out.  

During my period of reframing, I learned to take the time to make decisions that would benefit me in the long run. Did I want a bag I would become bored with, or would I rather build my emergency fund or put a little extra away for retirement?

Every time I choose to save or invest rather than spend on something I can do without, I remember that I got into the habit while getting out of debt. There is no one-size-fits-all method for getting out of high-interest debt, but a consolidation loan is a valuable option to consider.

Dana George

Dana is an Achieve writer. She has been covering breaking financial news for nearly 30 years and is most interested in how financial news impacts everyday people. Dana is a personal loan, insurance, and brokerage expert for The Motley Fool.

James Heflin - Author

James is a financial editor for Achieve. He has been an editor for The Ascent (The Motley Fool) and was the arts editor at The Valley Advocate newspaper in Western Massachusetts for many years. He holds an MFA from the University of Massachusetts Amherst and an MA from Hollins University. His book Krakatoa Picnic came out in 2017.

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