Recent data from the Federal Reserve reported that total household debt hit 17.05 trillion in the first quarter of 2023. If you are one of the Americans that has been impacted by growing inflation and thus increased debt, consolidating can be a good financial move. Though debt consolidation is not a cure-all and may not be the best choice for every type of debt you may have.

Primarily, debt consolidation can be used for credit card, medical or student debt. Consider how to take advantage of this process and the requirements that accompany it.

What is a debt consolidation loan?

A type of loan that combines several different debts into one. This way you only have to manage one payment each month, reducing the cost.

Debt consolidation loan uses

There are many different ways to go about refinancing your debt. These range from a balance transfer card, a home equity loan, a personal loan or a debt management plan. Before setting out to determine which type of debt consolidation approach is best for your needs it is important to consider how the types of debt impact your chosen route.

Credit card debt

If you have a few cards in your wallet that are carrying balances outside of your budget, consolidating them into one payment can help lessen the burden. All of these cards will likely have different interest rates, so if you are able to qualify for a new loan with a more competitive rate you will save money in both fees and overall interest.

Student loan debt

Consolidating your student loans takes the funding from different sources and refinances them into one monthly payment. There are two ways to go about this, depending on the source of your educational funding. For borrowers that received money via a federal loan, you can consolidate directly with the Department of Education. Those who had more than one federal loan or private loan will undergo a process known as refinancing.

Medical debt

Many times, medical costs come up unexpectedly and can build up while you’re focused on the health of you or your loved ones. If this is the case, consolidating it can make it much easier to pay off at once. Before moving ahead with this approach, make sure you can afford the interest rates you will be charged. Even if your monthly cost is less, it is possible you will pay more over time due to built interest.

Benefits and drawbacks of debt consolidation

Securing a debt consolidation loan can be an excellent way to handle paying down your debts, but the move comes with risk. Consider the benefits and drawbacks that a debt consolidation loan carries.


  • A more predictable monthly payment
  • Much shorter repayment period
  • Less money spent on interest
  • Potential to improve credit score


  • Potential high loan fees
  • Higher risk of overspending
  • May not be afforded best rates
  • Potential damage to credit score

Consider consolidating different forms of debt to secure affordable payments

The decision to sign off on another loan in order to pay down current debt can be a risk for some. Before agreeing to a debt consolidation loan consider other options for debt consolidation, and when shopping, pay close attention to APR, minimum monthly payments and income requirements.