If you have multiple streams of debt, such as high-interest credit cards, medical bills or personal loans, debt consolidation can combine them into one fixed monthly payment.
Getting a debt consolidation loan or using a balance transfer credit card can make sense if it lowers your annual percentage rate.
But be aware that refinancing debt has some cons — even at a lower rate:
You may not qualify for a low rate. Balance-transfer cards can be hard to qualify for and typically require good to excellent credit (690 or higher on the FICO scale).
Debt-consolidation loans are more accessible, and there are loans tailored for bad-credit applicants (629 or lower on the FICO scale). But borrowers with the highest scores usually receive the lowest rates.
Unless the lender can offer you a lower rate than your current debts, debt consolidation usually isn't a good idea. In this case, consider another debt-payoff strategy, like the debt avalanche or debt snowball methods.
Borrowers looking to consolidate with a loan can prequalify with some lenders to see potential rates without affecting their credit scores.
You could fall behind on payments. Missing payments toward the new debt means that you could end up in a worse position than when you started.
For example, if you fail to pay off your balance transfer card within the zero-interest promotional period, you will be stuck paying it at a higher APR — potentially higher than the original debt.
If you fall behind on a consolidation loan, you could rack up late fees, and the missed payments would be reported to the credit bureaus, jeopardizing your credit scores.
Before consolidating, make sure the new monthly payment fits comfortably in your budget for the entirety of the repayment period.
You have not addressed the root problem. Though consolidation is a helpful tool, it isn't a sure fix for recurring debt and doesn't address the behaviors that led to debt in the first place.
If you struggle with overspending, consolidation could be a risky choice. By taking out a loan to pay off credit cards, for example, those cards will have a zero balance again. You might be tempted to use them before the new debt is paid off, digging you into an even deeper hole.
If you have too much debt, you may be better off consulting a credit counselor at a reputable nonprofit who can help set up a debt management plan, vs. trying to tackle it on your own.
Jackie Veling writes for NerdWallet. E-mail: firstname.lastname@example.org.