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If you’re looking to start simplifying your finances, build a better credit history, or get out of debt faster, debt consolidation could be the right financial decision. Debt consolidation can occur in the form of a personal loan or through a balance transfer to a low-rate credit card. You can consolidate nearly any kind of personal debt, including high-rate credit cards, student loans, and medical debt. It’s important to understand that debt consolidation is not an immediate fix, it is a stepping stone to financial freedom when paired with consistent payments and positive financial habits.

There is a variety of benefits to debt consolidation, including lowering your interest rate, simplifying payments, building positive credit history, and getting out of debt sooner.

Lower Your Rate

According to Bankrate, as of December 2024, the average credit card rate is 20.35%, while the average personal loan rate is 12.29%. Rates for either of these borrowing options will depend on the loan amount, term, and your credit card program, but consolidating high-rate loans can help you obtain a more favorable rate.

Simplify Your Payment

By consolidating your loans into one, you’ll eliminate the need to track multiple monthly payments, due dates, and interest rates. When you choose a fixed-rate debt consolidation option like a personal loan, your monthly payment will not change over the term of the loan. This means you’ll have one predictable payment each month instead of various payments that may fluctuate each month.

Build Better Credit History

Debt consolidation will not make an immediate, positive impact on your credit score. But, when you continue to make on-time payments over the length of the loan, you may start to see improvements to your credit history. Plus, when you consolidate high-rate credit card debt, these consistent payments can lower your credit utilization ratio and ultimately help improve your credit score.

Get Out of Debt Faster

When you consolidate your debt to a lower interest rate, you can use the money you’d save on interest to make additional loan payments. For example, if your monthly payment goes from $300 to $250, that $50 saved on interest can be applied to the principal balance of the loan, which would help shorten the overall repayment term of the loan. It would also help you save more on the total interest paid since you would lessen the total monthly payments needed to pay the loan off completely.

Even though debt consolidation can be one of the most effective ways to organize your consumer debt, your current financial practices need to align with the requirements of debt consolidation. Establishing healthy financial habits, like making loan payments on time, spending within your means, and working towards a positive financial goal, can all work together to help ensure you get the most out of a debt consolidation loan.