5 Things to Consider Before Debt Consolidation

January 23, 2023

“What do you think of debt consolidation?” I've had this question from multiple people in the last month. The fresh start we all get with a new year has people considering their money afresh and I’m a fan. 

I’m a fan because living under a pile of debt is no fun, and it can put you in a position where you either have limited options or feel like they are limited. You might even be feeling like something big like this is the only way out of your financial woes, and this is almost certainly not the case.

What is debt consolidation? In short, it's lumping all your current debt into one big debt to hopefully get better terms (i.e. a lower interest rate). I'm not a debt counselor and have no advice for whether or not you should do it, but I think you'll find the following 5 prompts helpful as you weigh your options.

Here is what I would share with anyone asking this question:

1. You are not alone.

First, remember that you are not alone in this financial struggle or in having financial struggles. And you would not be the first to dig out from under this burden. The human story is one of overcoming and repairing and "making it."

And in recent times, as debt has become more accessible, thousands upon thousands have found their way out to experience abundance and prosperity. There is always hope! Debt and financial stress won't always be your story and your life, or at least it doesn't have to be. 

2. Evaluate your commitment.

Ask yourself if you are really serious about getting out of debt. If you received $5,000 today in the mail from Great-aunt Nessie, would you actually use it to reduce debt?

If not, why? What would you do with it instead?

This is what you want more than paying off debt. It is way better to identify that you still have priorities ahead of debt payment before taking a big step like debt consolidation.

3. Hold a healthy self-assessment.

Look at what brought you to this point, not from a place of judgment or self-criticism but from curiosity. Those same things will continue with you in the future until you look at them honestly.

Have a really honest conversation with yourself and, if you share a financial life with someone else, your significant other.

Get your full situation out on the table, including an honest look at why you spend like you do. Most often, the solution to your financial woes is at the root level, not in some grand action or windfall of cash.

4. Consider all your options.

If you're considering debt consolidation, have you really considered all your options? Here are some ideas to consider:

Assess if there's anything big you can sell or downgrade.

Make sure you have stopped the debt accumulation cycle. (More on this below).

Make sure you've done your own research. Do a Google search for "pros and cons of debt consolidation" and review multiple results.

Review all your options for paying off the debt.

- Option 1: Pay off the smallest debt first, then snowball that payment into the payment of the one with the next highest balance, and so on.

- Option 2: Pay off the balance with the highest interest rate first, then the one with the next highest interest rate and so on.

It can be easy to latch on to one thing that sounds like it might help especially if it sounds like the easy button, but there really is no easy button here.

5. Get organized.

Accept how much life really costs and make an honest budget for it. A budget is just a system for organizing your money and it's absolutely key you have you, especially one that works.

You know it works when you get results you like.

A budget that doesn’t work is just a fruitless exercise in trying to not spend everything you have.

Cutting back in a disorganized system is meaningless. Why? Because any amounts saved just blend in to the disorganization instead of working for anything specific.

This step is part of realistically looking at how debt consolidation is actually going to work for you before you commit to it.

Make sure you understand it and aren't just hoping you'll be okay with what it means for your life. 

In short, before you go down the road of debt consolidation—and for some of you it may be just the right thing to do—get organized first, do as much research as possible on your options, and stay hopeful.

And you can certainly be hopeful since the future is bright, especially when you get in the driver's seat and get serious about improving your circumstances.

Want more pieces like this one? Explore everything written pre-Substack here, and to get the latest in your inbox, join hundreds of others receiving the More to Your Life  

It's a newsletter for dreamers about work, money, and living a life of purpose, connection, and adventure.

No spam around here, just emails you hopefully thoroughly enjoy. Unsubscribe at any time.