Do you lie awake at night, worried about debt? Are you worried about your ability to make your payments each month? Are you struggling to make ends meet? If so, there is a chance that your debt is getting out of hand.
The average American household carries about $105,056 in debt, and while a large chunk of that comes from mortgages, the burden of credit cards and student loans can be just as overwhelming. In 2025, the average credit card debt per person is around $6,455, and student loan debt per borrower sits at roughly $38,375. With numbers like these, it’s no surprise that many people are looking for ways to get a handle on what they owe.
That’s why so many Americans consider debt consolidation. Simply put, it’s the process of rolling multiple debts into one new loan, often with a single monthly payment and potentially a lower interest rate.
But is it the right move for you? In this blog, we’ll share how debt consolidation works, why some people choose it, when it might be helpful, and when it may not.
How Debt Consolidation Works
Let’s start by addressing the elephant in the room: how does debt consolidation work?
Basically, debt consolidation means combining multiple debts into one new loan or account. Instead of juggling several payments with different due dates, interest rates, and balances, you make a single monthly payment, ideally with better terms. This approach can help simplify your finances and sometimes even lower your overall interest rate.
Here are some common ways people consolidate debt:
Personal Loans: You can apply for a personal loan from a bank, credit union, or lender and use that money to pay off your existing debts. Then, you simply repay the new loan over time.
Balance Transfer Credit Cards: Certain credit cards let you transfer existing balances, often with a low or 0% introductory interest rate. Just watch for transfer fees and the rate hike after the intro period ends.
Home Equity Loans: If you own a home, you may be able to borrow against your equity to pay off debt. These loans typically have lower interest rates but come with the risk of using your home as collateral. Additionally, home equity lines of credit can have an adjustable interest rate, which can ultimately lead to high interest rates down the road.
Each option comes with pros and cons, so it’s important to consider which one fits your situation best.
Pros and Cons of Debt Consolidation
If you feel like your debt is getting out of hand or think you would benefit from debt consolidation, it's important to understand both the benefits and the drawbacks. Consolidating debt isn’t a magic fix, but for the right person, it can help you achieve the financial stability that you are looking for.
Benefits of Debt Consolidation
Simplified payments: Instead of keeping track of multiple bills, you’ll have just one monthly payment to manage.
Potentially lower interest rates: If you qualify for a better rate, you could save money over time.
Possible improvement in credit score: Paying off multiple debts and making on-time payments on your new loan can help build a stronger credit history.
Reduced stress and better budgeting: Having a clear repayment plan can help you feel more in control of your finances.
Potential Drawbacks of Debt Consolidation
Not a solution for underlying spending issues: If overspending is the root cause, consolidation won’t fix that on its own.
Could extend repayment period and increase total interest paid: Even with a lower rate, a longer loan term could mean paying more in the end.
Risk of accumulating new debt: If you don’t adjust your habits, it’s easy to rack up new balances.
May require good credit to qualify for favorable terms: The best rates and loan offers typically go to those with strong credit scores.
Who Should Consider Debt Consolidation
So, is debt consolidation right for you? Here are a few questions to ask yourself.
Do you have multiple loans or credit cards with high interest rates?
Are you struggling to keep track of all your monthly payments?
Do you have a steady income to support a consistent repayment plan?
Can you commit to not taking on new debt while paying this off?
Are you ready to make a long-term plan to improve your financial health?
If you answered “yes” to most of these, you may want to consider debt consolidation.
Typically, debt consolidation can be especially helpful for:
People with multiple high-interest debts: Consolidating can help reduce your interest burden and make monthly payments more manageable.
Those with steady income and fair-to-good credit: These borrowers are more likely to qualify for better rates and repayment terms.
Borrowers who can commit to not taking on new debt during repayment: Without that commitment, consolidation can quickly become a temporary fix rather than a long-term solution.
Is Debt Consolidation Right for You?
Debt consolidation can be a good option for the right person, but you should do your due diligence and weigh the pros and cons before deciding. In this article, we covered how it works, who it may benefit, and what to consider. At Credit Central, we offer installment loans and even tax preparation services to help you manage your finances with confidence.
Are you ready to take control of your debt? Apply for an installment loan with Credit Central today or visit your local branch to get started.
