This will vary depending on the type of consolidation you pursue. Consider a 0% balance transfer card if you are able to pay off your debt before the rate adjusts upward as this may be the best way to save money.
If you have a higher amount of debt or think it will take you longer to pay it off, consider a consolidation loan for 36-60 months. Just be wary of high interest rates. If you don’t have a decent credit rating the chances of finding an affordable loan are limited.
You open a new line of credit and use it to “pay off” older balances that you owe. The older balances are essentially bundled or “consolidated” into this new debt. Then, you pay off the new debt.
This can vary. If you close the accounts you are consolidating, you may experience a drop in your credit score because your average age of accounts will decrease and your credit utilization will increase (both FICO factors). If you move debt to a new line of credit but keep your old accounts open and paid, you are more likely to see a positive or neutral credit impact.
If you have a good credit score, this may be a viable strategy to pay off your debts. It may allow you to make one monthly payment and repay your debt at a lower interest rate, saving you time and money. However, interest rates may change over time, especially in the case of balance transfer which often have a promotional period before the interest rate increases exponentially. So not only do you need a good credit score, but you also need to ensure that you can pay off the debt in full before the interest rate increases. This can be risky.
You likely will not be offered the most affordable interest rate, so this can make your debt repayment more difficult. Also, consolidation does not address financial behavior or cause you to change your habits. There is no counseling component, and you end up replacing old debt with new debt.
During a nonprofit credit counseling session, a counselor will review all your debts and be able to make the best recommendations for each individual’s circumstances.