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Pay Down My Debt

CuraDebt Debt Relief Review

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

CuraDebt Debt Relief launched in 2000 in Irvine, Calif., offering debt relief services to individuals and small businesses across the country. The company states it immediately got to work creating strong relationships with major creditors to better help its clients negotiate relief from their debt. CuraDebt believes in offering a solution to consumer debt, but also working to help connect customers with other professional services, such as tax assistance, or local attorneys to provide guidance through the debt relief process.

CuraDebt manages all its debt relief clients in-house, claiming that it provides the best communication and ensures the best possible results. CuraDebt has over 200 settlement letters, with about 50 currently viewable online, showing savings of between 49% and 100% of the debt amount enrolled. It has over 150 five-star customer reviews on Shopper Approved, as well as five stars on Customer Lobby.

It is a member of the Online Business Bureau, U.S. Chamber of Commerce, International Association of Professional Debt Arbitrators (IAPDA) and the American Fair Credit Council (AFCC). It has been in the top 2 rankings of “Best Debt Relief Company” by TopConsumerReviews.com for over nine years.

Breakdown of CuraDebt

CuraDebt offers a range of debt relief services, helping customers gain the best possible service.

Services offered

  • Debt relief

  • Tax debt relief

  • Debt settlement

  • Debt negotiation

Minimum debt required

$5,000

Credit check

Not specified

Debt settlement timeline

Not specified

Consultation fees

Free consultation/quote

Cancellation fees

Not specified

Service fees

Average of 20% of the total debt amount enrolled

Types of debt accepted

  • Credit cards

  • Personal loans and lines of credit

  • Medical bills

  • Collections and repossessions

  • Certain business debts

  • Certain secured debts

  • IRS debt and back taxes

Accreditations

  • Online Business Bureau

  • HONESTe Online

  • U.S. Chamber of Commerce

  • International Association of Professional Debt Arbitrators certified company

  • American Fair Credit Council

Ratings

  • 5 stars from Better Business Bureau

  • Over 150 five-star ratings on Shopper Approved

Service limitations

Doesn’t help with:

  • Lawsuits

  • Utility bills

  • Auto, student or government loans

  • Mortgage or home loans

  • Other secured debts

Free tools and resources

Free savings estimate calculator

Customer service

877-850-3328
counselors@curadebt.com
9 a.m.-8 p.m. ET Monday-Friday
10 a.m.-3 p.m. ET Saturday

Who’s eligible?

Individuals who are working to pay down these types of debts are eligible to work with CuraDebt:

  • Credit cards
  • Personal loans and lines of credit
  • Medical bills
  • Collections and repossessions
  • Business debts
  • Certain secured debts
  • IRS debt and back taxes

CuraDebt offers a variety of debt relief programs, including debt relief, debt settlement, tax debt relief, debt negotiation and debt consolidation. CuraDebt claims it’s often a better alternative than bankruptcy for individuals experiencing severe amounts of debt that they’re unable to repay or who are behind in their payment schedule.

What are the benefits and risks of CuraDebt?

Benefits

Risks

Quick debt relief: Working with CuraDebt means taking action to pay down or settle debt. Enlisting its help could result in debt relief that’s faster than continuing to struggle or declaring bankruptcy.

High cost: CuraDebt takes, on average, 20% of the total enrolled amount of debt as a fee.

Save money: CuraDebt negotiates with creditors for lower rates and lower payments or to settle the debt completely.

Can damage credit score: Working with debt relief or debt settlement organizations can damage credit scores.

Simplified process: Chasing down creditors can be emotionally exhausting. Working with CuraDebt can relieve the pressure and simplify the process of negotiating with creditors.

No guarantee: There’s no guarantee that CuraDebt can negotiate debt settlements.

Consolidate debt: Making one, easy monthly payment to CuraDebt is easier than servicing multiple debt payments each month.

Timeline is unclear: CuraDebt claims to help you become debt-free “as quickly as possible.” But there is no clear timeline for resolving your debt.

How much does CuraDebt cost?

All counseling and consultation sessions with CuraDebt are free. When CuraDebt is engaged in debt relief or debt settlement services, the fee is typically 20% of the total enrolled debt. CuraDebt also indicates a minimum debt of $5,000 is required from customers to initiate an engagement. Beyond that, CuraDebt outlines that its fees are calculated by:

  • Creditors you owe
  • Credit balances
  • Ability to contribute monthly dedicated account payments into the program
  • The amount that can be negotiated from your balance
  • How quickly your balance is negotiated
  • The fees the creditor charges

How long does the program take?

CuraDebt’s goal is to negotiate your debt repayment or to settle your debt entirely as quickly as possible.

Is CuraDebt safe to use?

CuraDebt has largely positive reviews on a variety of online consumer review sources, including the Better Business Bureau and the U.S. Chamber of Commerce. It is affiliated with the American Fair Credit Council and has over 200 settlement letters dating to 1998 highlighting savings between 49% and 100%. About 50 of those settlement letters are currently available to view online.

How do I sign up for CuraDebt?

To begin an engagement with CuraDebt, start by signing up for a free consultation. It can provide a free savings estimate on its website. From there, one of its representatives may be in contact, or you can contact the company directly by requesting a free consultation online, via email or via phone at 866-268-0424.

What to expect after signing up for CuraDebt

CuraDebt will begin to reach out to creditors after a session with a CuraDebt counselor. But it can’t help customers with:

  • Lawsuits
  • Utility bills
  • Auto, student or government loans
  • Mortgage or home loans
  • Other secured debts

It works to negotiate or settle your debt as quickly as possible. In some cases, having a lump sum to start paying toward your debts can help speed the process along.

4 alternative methods to pay down debt

If you’re looking to tackle debt repayment on your own, there are several different options you have available to you. Depending on the type of debt you’re facing, you can look toward consolidation, a debt management plan, a DIY debt settlement or filing for bankruptcy if your case is beyond repair.

Debt consolidation

Debt consolidation is a loan that’s used to pay off all existing debts, which allows you to make a single payment rather than tracking multiple outstanding debts and payment schedules. Debt consolidation can sometimes offer lower interest rates, extended terms or lower monthly payments.

Pros

  • Helps to keep you organized
  • Simplifies repayment with one repayment schedule to track
  • Can offer a lower interest rate or better terms

Cons

  • Doesn’t erase debt
  • Doesn’t reduce the total amount of debt principal
  • Can damage your credit score if you close other debts when you pay them off with your consolidation loan
LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Debt management plan

A debt management plan is administered by a credit counseling agency. It helps you to organize your debt, meet with a credit counselor who will offer you guidance, negotiate with creditors and create a plan to avoid debt in the future.

Pros

  • Can reduce total debt amount if the credit counseling agency negotiates debt for you
  • Can offer sound guidance for getting out (and staying out) of debt
  • Helps you to create an organized repayment strategy

Cons

  • Debt management plans often cost money; there is usually a monthly fee
  • Only works for some kinds of debts
  • Requires a commitment to want to pay down your debt — and to stay out of debt

Bankruptcy

Bankruptcy is a federal protection program that allows businesses or individuals to eliminate debt and recover financially. There are two kinds of bankruptcy for individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is often called “liquidation” bankruptcy. In Chapter 7, borrowers may have to give up their assets to pay down part of their debt. The government may sell these assets to settle debts. Other debt may be settled or discharged. Chapter 13 involves approving a repayment plan that is negotiated between the borrower and creditors over a set period.
Pros

  • Gives you an opportunity to start over with a clean slate
  • You can have your debts negotiated by the government
  • The process is relatively quick — often taking six months at most

Cons

  • Bankruptcy stays on your credit report for seven to 10 years
  • You may lose your assets in the process
  • You may still have to repay your debts if you file for Chapter 13 bankruptcy

DIY debt settlement

Working to negotiate, and potentially settle, your debt with your creditors can be an arduous and intimidating task. But if you can negotiate effectively, it could reduce your monthly payment, provide more flexible terms or even give you a lower amount to repay.
Pros

  • Repay less than you owe
  • You may be able to earn more flexible repayment terms
  • You’re showing your creditor that you’re working toward paying down your debt

Cons

  • You may have to pay tax on the forgiven difference; the IRS counts any forgiven debt as income, and it’s taxed accordingly
  • There’s no guarantee that creditors will be open to negotiation or a settlement
  • You may still owe a significant portion of your debt, even if it’s less than before you began the negotiation process

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dave Grant
Dave Grant |

Dave Grant is a writer at MagnifyMoney. You can email Dave at dave@magnifymoney.com

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Won’t impact your credit score

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Personal Loans

Secured vs. Unsecured Personal Loans: Understanding the Difference

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

personal loan
iStock

At one point or another, most people will need to borrow money for a large expense such as college tuition, purchasing or remodeling a home, or buying a vehicle. Although it’s possible to save up enough cash to pay for these big expenses, many choose to finance their purchase and pay it back over a period of time using either a secured or an unsecured personal loan.

Unfortunately, it’s not always easy to determine which type of debt is best for your unique financial situation. For new borrowers, the differences between the two can be confusing. What’s required of a borrower when they take out a secure or an unsecured loan? When might it make sense to use one versus the other?

Secured vs. unsecured personal loans

Secured loans and unsecured loans have several differences, but the most important to remember is that secured loans are literally “secured” against items owned by the person needing the loan, while unsecured loans are not. This collateral could be anything that holds equity and is owned by the borrower.

For example, you might use your car, boat, home or property you own as collateral on a secured loan. Unsecured loans, on the other hand, only look at a borrower’s ability to repay their loan based on their income, current debts and credit score.

However, this isn’t the only way that these two loan types differ. Let’s do a side-by-side comparison to get a better idea of what each of these loans requires from borrowers, and how they work.

 Secured personal loansUnsecured personal loans

Credit check needed?

Sometimes. Secured loans don’t have as strict credit requirements because the lender is already using something of monetary value to secure the loan. So, if you don’t have fantastic credit, but you own a car, lenders may be more lenient.

Yes. Unsecured loans don’t use any collateral to secure the loan. Typically, lenders require a credit check to ascertain your ability to repay the loan.

Typical interest rates

Interest rates will vary on secured loans, but are often relatively low – around 5%. However, some secured loans (like title or payday loans) have much higher interest rates associated with them (often hitting, or exceeding, double digits).

Interest rates can range from 4% to 36% APR. This large range in interest rates is dependent on the type of loan (for example, interest rates for federal student loans are lower than personal loans or lines of credit), down payment made by the borrower and ability for the borrower to pay off the loan (judged by their credit score).

Examples

  • Secured credit card

  • Mortgage

  • Auto loan

  • HEL/HELOC (for home repairs and improvements)

  • Payday loan

  • Title loan


  • Personal loan

  • Business loan

  • Student loan

  • Credit card



Collateral required?

Yes. The collateral provided by the borrower “secures” the loan.

No. Unsecured loans are based entirely on your credit history and ability to repay the loan.

Best for?

Secured loans can help you to complete expensive and necessary purchases if you have poor credit history. However, some secured loans (like payday loans) are predatory in nature, and have high interest rates that could further hurt your credit if you’re unable to repay them.

Borrowers who have good credit and the ability to pay back their loan on a purchase.

What are secured personal loans?

Secured personal loans are offered by a wide range of lenders, and are intended to help borrowers who may or may not have a solid credit history make necessary big-ticket purchases or rebuild their credit.
This debt works in a relatively straightforward way. A borrower applies for a secured personal loan through a bank, credit union or a nonbank lender. The lender then assesses what the borrower has to offer as collateral for the loan. Based on the value of the borrower’s collateral, the lender will approve them to borrow a set amount of money. However, if the borrower fails to keep up with payments on their secured personal loan, the lender is permitted to repossess the borrower’s collateral at any point in time.

For example, if you take out a secured personal loan to pay for a home renovation using the car you own as collateral, your lender can come and take possession of your car if you fail to make payments. If you’re a borrower who can be counted on to make payments on time and to pay the loan off in full within the set time frame, this may not be intimidating.

However, many people seek out secured loans because their credit score alone isn’t enough to obtain an unsecured personal loan from a lender. This might be through no fault of their own, or it could mean they have had trouble repaying their debt in the past for a wide range of reasons. Be cautious when offering collateral for your secured personal loan, and make sure that you’ll be able to afford the loan’s repayment terms (including interest).

One of the benefits of a secured personal loan is that it can be used for nearly anything. Many people, for example, use the equity they already have in their home to finance a home repair loan (HELOC). Others use secured loans to finance vehicle purchases or to fund the launch of a business.

Regardless of what you’re using your secured personal loan for, it’s important to read through your loan terms carefully. Secured personal loans are notorious for being charging high interest rates and can sometimes have predatory rates or practices.

If you’re pursuing a secured personal loan, keep a few things in mind:

  • Whatever you choose to put up for collateral for your loan can be taken by your lender if you fail to make payments.
  • You may be able to get a lower interest rate with a secured personal loan because the lender is taking on less risk when you offer up collateral.
  • Some secured personal loans are predatory, and they come with hefty fees and high interest rates – make sure to shop around and do your research before signing on the dotted line.

What are unsecured personal loans?

Unsecured personal loans are different. They don’t require any collateral from the borrower. However, because there’s nothing to “secure” them, or to protect the lender should you default on payments, they tend to be harder to obtain.

Unsecured personal loans usually require a credit check, and the interest rates associated with the loan are largely dependent on whether or not you have decent credit. If the lender feels they can trust you to repay the loan based on your current finances and you have a history of paying back your debt on time and in full, you may qualify for a lower interest rate. However, if you don’t have a good history of repaying your debt, or you don’t have income available that would support the loan repayment, you could get stuck with a higher interest rate.

That being said, unsecured personal loans certainly serve a purpose. Student loans, for example, are a form of unsecured personal loans. They require no down payment or collateral, often have reasonable interest rates and help students to fund their education. A variety of lenders including banks, credit unions and nonbank lenders (typically found online) offer unsecured personal loans.

It can be frustrating for borrowers to try and obtain an unsecured loan because restrictions (like a minimum credit score, a high income or a cosigner) are often more strict than those associated with secured personal loans. It can be helpful to keep in mind that for a lender, an unsecured loan is a notably higher risk than a secured personal loan. Essentially, they’re taking a chance on the fact that you’ll pay the loan back in full with interest, and have no real way of knowing for sure that you’ll be able to do so. This is also why interest rates for unsecured personal loans are significantly higher than those you can find with secured personal loans.

If you’re pursuing an unsecured personal loan, you should keep a few things in mind:

  • You’ll need to budget for potentially higher monthly payments than a secured loan.
  • You will need to have good credit to obtain an unsecured personal loan.
  • You may not qualify for the loan unless you have a cosigner who can help lessen the amount of risk a lender takes on by lending to you.

If you’re unsure about where to find a personal loan, you can see offers from LendingTree. With it, you’ll input basic personal information and what you’re looking for out of a loan. If you qualify, you’ll get to review personal loan offers from various lenders.

Should you get a secured or unsecured personal loan?

The actual question on most borrowers’ minds is: Which loan is right for me? The truth is, both secured and unsecured personal loans pose some risk for you as a borrower. However, there are several things to take into consideration when deciding which is best for you.

Ability to repay

Consider everything that could impact your ability to repay this loan. Is your job secure? Do you have upcoming expenses that will tighten your budget? If you’re concerned about repayment, putting up something you own that’s necessary for day-to-day survival (like a home or a vehicle) for a secured personal loan may not be in your best interest. Of course, if you’re worried about your ability to repay a loan, there’s a good chance that you should reconsider the loan amount – or whether you should apply at all.

Total interest and fees

Although unsecured loans often have higher interest rates, secured loans may have notable hidden fees if they’re predatory, like a payday loan. Weigh your ability to repay loans each month, taking note of the interest amounts. It usually serves borrowers to shop around before committing, and that may mean looking at both unsecured and secured loans to determine what works best for you.

Future financial goals

Do you plan to pay this loan off quickly? Do you have other financial goals in the near or distant future that this loan could impact? If you want to pay a loan off quickly and are confident in your ability to repay, locking in low interest rates with a secured loan might make the most sense.

Worst-case scenario planning

It always helps to consider the worst-case scenario when applying for a loan. If you fail to repay your loan, what’s going to happen? Whether you apply for a secured or unsecured loan, your credit will take a hit.

If you have a secured loan, you could potentially lose your house, your car or other assets you’ve put up as collateral for the loan. You may also need to take out another loan to cover this debt and end up in a vicious debt cycle. If you can afford to lose what you’ve put up as collateral, this may not be the end of the world. However, if you can’t – it’s likely not worth the risk.

Final thoughts

Applying for a loan can be challenging, but it’s important to know that you have options available to you. Researching the difference between secured and unsecured loans can help you determine which is best for you based on what you can afford, and which loan type fits best into your long-term financial plans. Your relationships with some financial institutions could also positively impact the loan terms you receive.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dave Grant
Dave Grant |

Dave Grant is a writer at MagnifyMoney. You can email Dave at dave@magnifymoney.com

TAGS:

Get A Pre-Approved Personal Loan

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Won’t impact your credit score

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Pay Down My Debt

Is Debt Consolidation a Good or Bad Idea? Here’s What to Consider

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

debt consolidation
iStock

Even though most people try to stay out of debt, sometimes it’s hard to avoid. Over time, you might start to accumulate a number of different loans that served different purposes. This is commonly seen with student loans. In order to afford an education, students may take out debt each year to pay for tuition and other costs.

However, this problem isn’t exclusive to those who owe student loans: in fact, many people run into the frustrating dilemma of having multiple consumer loans in repayment.

To clean up their repayment process — and to possibly get a better interest rate or repayment term — some people turn to debt consolidation. But is debt consolidation a good idea? And if so, when is it right for you?

What is debt consolidation?

Debt consolidation is a process that rolls all of your existing debt into one, convenient loan. This means you could go from having multiple loan payments from different lenders with different repayment terms, to having one payment each month with a single lender.

The debt consolidation loan (often a personal loan) is used to pay off all of your other loans. This can be viewed much like a balance transfer — you’re transferring the balance of all of your loans to one bigger loan.

The lender providing your loan typically provides you with a lump sum payment to repay all of your debt, or it works directly with your other lenders to pay off your loans for you as part of the consolidation process.

You can consolidate a wide range of debt types, including:

Debt consolidation can only really work if you can secure a personal loan with an interest rate that is lower than what you are currently paying on your debts. That way, you’ll save money on interest over time after consolidating.

Finding a lender can be difficult. You may consider local banks and credit unions. But online lenders may have better rates and terms. To help you shop lenders, consider LendingTree’s personal loan tool. Using the tool, you’ll enter some personal information plus what you’re looking for in a loan. Afterward, you’ll receive loan offers, which you can compare to find the best deal for your credit score.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

When is debt consolidation a good idea?

Debt consolidation isn’t for everyone, but there are several scenarios where this course of action would make sense for your unique financial situation.

You have a high credit score that could secure you a lower interest rate.

If you’re considering debt consolidation, you’re looking to get a better deal on your new, consolidated loan than what you already have. If you’re paying high-interest debt (such as credit cards or payday loans), consolidating at a lower interest rate could save you money on interest. (Find out how to view your credit score here.)

You have an isolated reason for getting behind on your debt.

Sometimes life happens, and we end up with debts that are unavoidable in the moment. A medical emergency that your savings couldn’t totally cover is an excellent example of this type of unavoidable debt. If you’re working to put a plan in place to stay out of debt in the future and are looking to simplify your debt repayment, consolidation may be for you.

Your consolidated loan offers additional benefits.

This might mean a shorter repayment term or fewer fees to ensure you’re making the most out of a new loan.

You’re exhausted by tracking all of your different loans.

If you have a number of different loans and are running the risk of missing a payment or overpaying due to high interest, it might make sense to consolidate them all to simplify your financial life and help you pay down your debt more quickly.

When is debt consolidation a bad idea?

Although debt consolidation can be a huge help in many cases, there are certain situations where it doesn’t make sense to consolidate your debt.

You have a spending problem.

Debt consolidation shouldn’t be used as a method to free up more cash flow to continue spending. If you find that your debt is largely consumer debt, and that you have no intention of reevaluating your budget or your lifestyle to support your debt repayment journey, consolidation isn’t going to make things better — it’s just going to act as a short term fix to your lifestyle problem.

You’re digging yourself a deeper hole.

Although it’s commonly the case that a debt consolidation loan will come with better interest rates and repayment terms, this isn’t always true. If consolidating your debt is going to force you to repay your loans at a higher interest rate, you’re better off keeping your multiple loans (even if it’s frustrating to juggle them all simultaneously).

You have an average or below-average credit score.

The interest rate you’re able to secure is largely dependent on your credit score. If your score is less than stellar, you’ll have to pay close attention to what interest rate you’re offered, and whether it’s actually a better solution than simply staying the course and paying down your multiple debts.

You’re stuck with new fees.

Sometimes, debt consolidation services have an origination fee of between 1% to 8%. If your ultimate goal is to save money through debt consolidation, this may not work for you.

Don’t just assume that debt consolidation is the answer you’ve been looking for — do your research first. You might find that sticking with your numerous debts and paying them down at their reasonable interest rates makes the most sense until you’re able to get your spending habits in check, or until you’re able to raise your credit score by consistently paying them down.

What are the risks of debt consolidation?

There are several risks and downsides to debt consolidation that you need to be aware of:

It might damage your credit score.

When you first consolidate your debt, you may see a minor dip in your credit score: this is because the lender you’re applying with will do a hard credit inquiry after you fill out your application. If you apply with multiple lenders, multiple hard credit inquiries will push your credit score down. However, you can avoid this problem by getting pre-qualified with multiple lenders, and only filling out an official application with one of them to reduce the number of hard credit inquiries on your credit report.

You may be unable to continue to use lines of credit you previously had available.

By using a debt consolidation service, like a personal loan, your total credit utilization doesn’t go down. So, even though your credit card is magically paid off by your new consolidated loan, that doesn’t mean you get to start racking up more debt. Doing so will cause your credit score to go down, and you may end up in an even stickier situation than you were in before.

You may pay more interest over time.

You’ve likely been paying back your existing debts at a high interest rate for a given length of time. Sometimes, people pay back multiple debts for years before they consider consolidation. Then, when you apply for consolidation, they might extend your repayment term even further — meaning you’re technically paying “extra” interest for the convenience of consolidation. However, you can fix this problem by working to pay your debt back before your repayment period is up and, in turn, driving down your principal (and the total interest you have to pay).

You may have fees.

Some debt consolidation loans have origination fees to process your new loan. Watch these fees closely to make sure they’re not unreasonably high — if they are, consider looking into another debt consolidation method.

You may get a shortened timeline for repayment.

Debt consolidation isn’t usually intended to be a long-term solution. Instead, debt consolidators shorten your repayment timeline. This can be incredibly helpful if you’re looking to get out of debt quickly, but it also may mean higher monthly payments and an increased likelihood that you’ll default on your loan.

3 alternatives to debt consolidation

If you’ve looked into debt consolidation, and have determined it isn’t the right choice for you, you have several alternatives to consider.

  1. Home equity line of credit (HELOC). A HELOC is where you borrow money against the equity you’ve built up in your home. However, if you’re worried about being unable to repay the loan, you may want to select a different alternative option as your home is technically collateral if you’re unable to pay your HELOC. (Learn more about using home equity to consolidate debt here!)
  1. Balance transfer. A credit card balance transfer is often a great option for people looking to consolidate their credit card debt. Many credit card companies offer 0% interest for a set period of time, which means you could potentially knock down a notable portion of your debt principal before having to pay interest each month. Be sure to read the terms and conditions regarding any fees or deferred interest clauses. (Check out our pick for the best balance transfer credit cards.)
  2. Debt refinancing. If you’re more concerned about getting a lower interest rate on your loans but aren’t worried about managing multiple payments, refinancing might be an option to consider. Through refinancing, you’ll be able to apply for a lower interest rate through your existing lenders, based on your previous repayment history.

Make sure you look at all of your options when trying to consolidate your debt — you never know what you might find, or what’s going to work best for your long-term financial goals. If you do choose to pursue debt consolidation, make sure to shop around with different lenders. Being able to compare different interest rates, fees, and repayment terms, can help you ensure that you’re getting the best loan as you start to move toward debt free living.

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Dave Grant
Dave Grant |

Dave Grant is a writer at MagnifyMoney. You can email Dave at dave@magnifymoney.com

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