when is debt consolidation a good idea?

It depends on the terms of the new loan and your commitment to a budget

In the past decade, consumer debt has grown by 24% in Kentucky, 22% in Indiana, and 12% in Ohio.1 So you’re not alone if you feel like your monthly debt payments are getting out of hand. Debt consolidation can help reduce the number of monthly payments you have to make. It may also be a way to reduce the amount of interest you have to pay, lowering your loan’s total cost, and making it easier to fit payments into your budget.

Debt consolidation rolls several debts into one

Consolidation is a debt-management strategy in which you replace several separate debts with a single loan and a single monthly payment. Let’s say you are paying off multiple credit card balances, medical bills, and a personal loan. With a good debt consolidation plan, you could pay off multiple balances with a single loan instead of making payments on four accounts with four different interest rates and repayment periods. The balances are merged and are replaced with a single monthly payment.

Depending on your situation, consolidation can go beyond just simplifying your payments by combining them. You may also be able to get a lower interest rate, reducing the amount of interest you’ll pay over the life of your loan. Or you could take out a loan with a longer repayment period to reduce your monthly loan payment.

Whether consolidation makes sense for you depends on the terms of the specific consolidation loan you’re considering. Those terms will depend on many factors, including your credit history and your debt-to-income ratio. Bear in mind that consolidation may not always be the best way to reduce your debt load. 

Lower payments may come with a trade-off

A common way to lower your monthly payments with a consolidation loan is to extend the loan term. For example, you may be able to pay down your debt over 10 years instead of five years.

It’s always important to figure out the total cost of paying back your loan: Multiply your total monthly payment by the number of months you’ll have to pay it. You could find that you’ll end up paying more over the long term with a consolidation loan. If that’s the case, you have to decide whether lowering the monthly payment is worth the extra interest you’ll have to pay over the life of the loan.

You need a debt repayment plan, too

If you consolidate your debts without recognizing the circumstances or behaviors that got you in over your head, you risk getting into more financial trouble down the road. That’s why it’s a good idea to pair debt consolidation with a concrete plan for how you’ll repay it.

That plan should include a budget that you intend to follow. Realistically, you’ll probably have to cut back on spending for the consolidation to pay off.

When to talk to a professional

If you’re having trouble making debt payments, it’s almost always a good idea to talk to a debt counselor. They can help you take stock of your financial situation and help decide on the right strategy for your specific situation. Just be sure you’re talking to a debt counselor or credit counselor who will act in your best interests.

You can find a list of credit counseling agencies at the U.S. Department of Justice’s website or contact a local member agency of the National Federation for Credit Counseling. For instance, Apprisen has locations in Ohio, Kentucky, and Indiana, while Greenpath Financial Wellness has locations in Ohio and Indiana.


The information on this page is accurate as of January 2021 and is subject to change. First Financial Bank is not affiliated with any third-parties or third-party websites mentioned above. Any reference to any person, organization, activity, product, and/or service does not constitute or imply an endorsement. By clicking on a third-party link, you acknowledge you are leaving bankatfirst.com. First Financial Bank is not responsible for the content or security of any linked web page. Member FDIC / Equal Housing Lender.

1 2019. Experian, Consumer Debt Study. https://www.debt.org/faqs/americans-in-debt/

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First Financial Bank is not affiliated with any third-party websites. Any reference to any person, organization, activity, product, and/or services does not constitute or imply an endorsement. First Financial Bank is not responsible for the content or security of any linked web page.