Is Debt Consolidation A Good Idea For You?

If you’re one of those folks who are struggling to manage a number of high-interest debts from credit card bills to medical, work and personal loans or any other types of loans, debt consolidation may be a suitable option for you. We say ‘maybe’ because there are some cons to this option that you need to consider before you go ahead with it. 

So to answer the question “is debt consolidation good or bad”, we’ll cover as much detail in this article as possible to give you a more informed approach about what you need to do to get yourself out of debt. 

What‌ ‌Is‌ ‌Debt‌ ‌Consolidation?‌

Debt consolidation refers to the act of taking out one loan to pay off several other unsecured consumer debts, liabilities, and high-interest loans such as payday loans. Some of the best benefits to this option include lowering your interest rate, lowering monthly payments, protecting your credit, but most importantly getting out of debt quicker. 

How‌ ‌Debt‌ ‌Consolidation‌ ‌Works‌

When several other debts are combined into one new debt, it makes debt repayment a lot easier. Many consumers can apply for a debt consolidation loan through their banks, credit card companies or credit unions. If you have an amazing relationship with your institution, this is a great place to start. But if you get turned down, try looking into private mortgage companies or lenders

Debt consolidation comes in three forms, including balance transfers, credit counseling, and debt consolidation loans. 

Read more to find out how debt consolidation works in Ontario, Canada.

Balance Transfers

One of the best ways you can save money is by transferring a high-interest rate credit card to one that has a lower rate. If you don’t have a low-interest rate credit card, then you should apply for one. But when you do, be on the lookout for introductory rates, otherwise known as teaser rates. Keep monitoring what the rate is going to be after the first few months. If you find that the rate is too high, then move on to the next option. It also helps to know how long does a balance transfer take since it varies from one credit card company to another.

Credit Counseling

Debt management companies can work out how to restructure your unsecured debt with your creditors. Using a debt relief plan, you can make one monthly payment to these companies and pay your creditors. There’s no need for loaning money when you’re dealing with companies that provide credit counseling. Instead, these companies will get you debt‌ ‌relief‌ by negotiating with your current creditors. There are some benefits that offer relief from unsecured debt, such as:

  • Lowered or nixed interest rates
  • Reduce monthly payments
  • Nixed late fees

Debt consolidation loans come in two types: secured loans and unsecured loans. The most common one out of these is secured loans, but you also need to be wary of them. These loans come with collateral, like a vehicle or property. For instance, if the borrower is unable to make the monthly payment, their car or house could be at risk.

Unsecured debt consolidation loans, on the other hand, are safer as there’s no collateral required. Though they are tougher to own as borrowers need excellent credit.

Not‌ ‌The‌ ‌Perfect‌ ‌Solution‌

Is debt consolidation bad? One thing to note is that debt consolidation loans don’t completely get rid of the original debt but rather transfer the loans to a different lender or type of loan. 

Another thing is that even though the monthly payment and interest rate are lower with a debt consolidation plan, it’s crucial to focus on the payment schedule. Longer payment schedules indicate that you could be paying more in the long run. 

If you’re thinking about consolidation loans, talk to your credit card issuer(s) to determine how long it’s going to take for you to pay off your debts at their current interest rate and then compare them to the interest rate of your new loan.

Another thing to consider is the possible damage to the credit score. Reasons include:

  • Closing old credit accounts and opening up a new single one could reduce the total number of credit available, which raises the debt-to-credit utilization ratio.
  • Initially rolling ongoing debts or loans into a new one could negatively impact your credit score. This is because credit scores appreciate payment histories that are more consistent and debts that are long-standing.

Alternatives‌ ‌To‌ ‌Debt‌ ‌Consolidation‌ ‌Loan‌

Debt consolidation isn’t the only way to manage your debt as you may also consider debt settlement, a debt management plan, or filing for bankruptcy.

Debt Settlement

This is the process of creating a formal offer that is a consumer proposal. You can settle your debt with your lenders by lowering the amount you own and offer partial repayment without any interest through a trustee in bankruptcy. Although this is usually done for a fee. 

Debt‌ ‌Management‌ ‌Plan‌

You can get a nonprofit credit counseling agency to get you to develop a debt management plan and maintain it for you. You can also set up a realistic budget through a financial counselor and work out lower payments and fees with your creditors.


If all else fails, bankruptcy is your only option, especially when it comes to debt. But before you consider this, you should get in touch with a credit counselor to weigh both the pros and the cons.


So is debt consolidation worth it? That only depends on your needs and how quickly you can pay off those debts within those schedules. In the end, the best answer to that question is yourself and your better judgment. Just be sure to go through all the good and the bad that comes with debt consolidation as well as other options before you make your decision.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.