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To Consolidate...or Not to Consolidate?

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Exploring When Debt Consolidation Makes Sense

Debt affects nearly every consumer, no matter what financial situation you find yourself in. According to the Federal Reserve1, American's hold nearly $4.2 Trillion (yes, with a T) in consumer debt, or, roughly $38,000 per person. This number excludes mortgage debt but includes everything else: student loans, credit cards, vehicle loans, personal loans, and other debts.

If digging out of debt is on your financial to-do list, debt consolidation may be a great option for you. However, before starting down that path, it's important to know that many times debt consolidation loans only work with discipline and behavior modification.

All debt consolidation loans are different. Some consumers have a lot of debt with low-interest rates. Others may not have that much debt, but they are interest rates that are way too high. Still, others may have a combination of the two. When CSE consolidates loans and debt for members, each loan's blueprint is very unique.

Let's explore the benefits while tackling some misconceptions of consolidation loans.

With debt consolidation, you aren't reducing debt, you are simply combining multiple debts into one debt. However, the benefit of consolidating debt should be one or more of the following:

  1. Reduce the amount of interest you pay over the life of the loan, which saves money on the back end
  2. Shorten the life of the overall debt
  3. Free up extra cash flow in your monthly budget

Let's Dig Deeper

Reduce Interest on Debts
The quickest and easiest way to see savings on your debt is by examining the interest and rates that you're paying. You save on interest in one of two ways. Either your rate is lower, resulting in less interest you pay each time you make a payment, or you may save interest over the life of the loan if you can shorten the term. Either way, each time you pay interest, that results in less of the payment going to the principal. The less interest you pay, the faster you'll pay off your debts.

Shorten the Life of Debt
Consolidating debt can help you get out of debt quicker. For example, one downside to credit card debt is that it can take a long time to rid yourself of a balance if just making minimum payments. Alternatively, other debts such as student loan debt may have a long repayment period making it feel like an eternity before you see the light at the end of the tunnel. Consolidating all of those debts may give you an end date to a loan that otherwise may have taken years longer.

Freeing Up Cash Flow
Let's make some assumptions - when you currently add up all of your monthly bills, let's say it comes out to $1,000. By consolidating debt, that may reduce your total monthly cost to something close to, say, $750. When you free up cash flow, make sure you use it correctly. Either pay off debts quicker, put some into savings, or use it for other monthly expenditures on your 'needs' list.


It All Sounds Good, but...

Like we said earlier, everyone's financial situation is different. Likewise, everyone's end goals are also different. However, if your goal is to rid yourself of debt, the most important part of a debt consolidation loan is financial responsibility. The last thing you want to do is consolidate debts, while not making changes in your behaviors. Don't go out and rack up new debt, whether that be charging credit cards, buying a new vehicle or taking on any other debts. Work towards your goal of becoming debt-free.


Ready to Explore Options?

CSE has lending experts that are great at piecing together debt consolidation loans. Our lending process is thorough, easy, and always keeps our members' best interests in mind. If a debt consolidation loan is not right for you, we will tell you! We can help lay out a financial road map to getting out of debt in other ways. Our primary goal is to help you get out of debt while paying less on the debts that you owe, and we have the products and expertise to do just that.



1. The United States Federal Reserve. Consumer Credit - G.19. December 2019.

1 comment

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CHRIS CURTICE | Jan 30th 2021 @ 1:56 PM

What about a home equity home loan to consolidate all debt and payments to only have one payment and clean credit up to raise score

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