Should You Use A Debt Consolidation Loan?

If you’re weighed down by debt and struggle to see a way out, you may have considered a debt consolidation loan at some point. By consolidating multiple debts into a new loan, you can lower stress on yourself by not needing to tack several payments every month which can greatly simplify your finances, and even lower your monthly-out-of-pocket expense.

Also, if your debts were really out of control, debt consolidation may even offer a way to save yourself from debt collections, ruining your credit, or even bankruptcy.

Let’s take a look whether debt consolidation is right for you and what other options you may have.

Disadvantages of Debt Consolidation

Consolidating your debts is one option to consider, but it doesn’t make sense for everyone. In fact, if your circumstances aren’t favorable, debt consolidation can often compound the problem of too much debt for many people, due to the way the process works.

Here are some key reasons debt consolidation is not normally the best path to getting out of debt:

Debt consolidation may not lower your interest rate.

While it’s true that debt consolidation can help you merge all of your debts by getting a loan with one monthly payment, you may not actually be saving money once everything is said and done. If you don’t secure an annual percentage rate, or APR, that is considerably lower than the weighted average interest rate you have now, you could pay the same amount of interest, or easily more, depending on the details of your new loan.

You make have a longer term loan.

Depending on the terms of your new debt consolidation loan, you may actually extend your repayment timeline. If that’s the case, you’ll spend even more time in debt than you are spending now, plus potentially pay more interest as well. For some this may be a necessary evil, but there are likely other options to consider, like a side hustle.

You may gain a false sense of accomplishment.

Debt consolidation usually leaves people feeling relieved they reduced the number of monthly payments they need to make each month. Since you still carry the same amount of debt, however, this feeling can give you a false sense of accomplishment. You didn’t pay any debt off by consolidating it; you simply moved it around.

It doesn’t change what got you there, old financial behaviors to tackle.

The biggest disadvantage that comes with debt consolidation is that it doesn’t help anyone change their behavior in the long run. If you ran up dozens of credit card balances and consolidated them for peace of mind, what’s to convince you not to do the same thing again? Without a long-term plan to avoid debt and change your spending habits, you could easily end up worse off than when you began. There is nothing worse than getting this new consolidated loan just to go straight out to putting everything on the credit card.

Alternatives to Debt Consolidation

If you’re worried that debt consolidation won’t actually leave you better off, there are several alternatives to consider instead. While each of these options also has their own set of disadvantages, they may make more sense in the long run.

Alternative #1: Sign Up for a Balance Transfer Credit Card

While formal debt consolidation offers a way to consolidate several credit card balances and loans into one new product with a single monthly payment, you can often accomplish the same thing with a balance transfer credit card.

Even better, most balance transfer credit cards let you pay zero percent interest during an introductory promotional period. And during the time your balance isn’t accruing any interest, every cent you pay towards your new loan goes directly towards the principal. While there are a whole lot of balance transfer credit cards on the market, NerdWallet offers an easy way to compare some great options.

How to Make a Balance Transfer Credit Card Work for You

In a lot of ways, using a balance transfer credit card might be a band-aid solution. If you don’t use your time wisely and actually pay off your debt, you can end up in the same spot – with lots of debt at a high interest rate – once your introductory offer expires. Here are some steps to take if you want to take full advantage of a balance transfer offer:

Make sure you get the right balance transfer credit card for your needs.

In addition to the two balance transfer credit cards featured in this post, there are many other top balance transfer credit cards to consider. Make sure to research them all, noting the fine print and terms and conditions, but also taking special care to understand the terms of their introductory zero percent offer.

Transfer all of your debts to your new balance transfer credit card.

To get the most out of your new balance transfer credit card, make sure you transfer as many high interest balances as you can. With as much of your debt at zero percent interest as possible, you’ll be in the best position to pay down your total debt load faster.

Pay as much you can towards your new balance each month.

Once you transfer your high interest balances to a card that offers zero percent interest, your minimum monthly payment on those debts should decrease. However, you should keep paying as much as you can each month no matter what. If you don’t repay your balances during the zero percent interest introductory offer, you won’t be much better off when it’s over.

Don’t use your credit card for regular spending. Use cash instead.

Although some balance transfer credit cards offer rewards on your everyday spending, you shouldn’t use your new balance transfer credit card for purchases until you are debt-free. If you keep using credit to buy items you cannot afford, you will never get out of debt! Keep your balance transfer credit card in a drawer or in your freezer for safe keeping, and refrain from using any other credit cards while you’re still in debt.

Alternative #2: Debt Snowball and Debt Avalanche Methods

Debt consolidation can help you merge all of your debts into a single loan, but that doesn’t mean it will actually save you money. In almost every case, you would be better off paying your debts off the hard way – as in, using your own money to absolutely destroy the loans you have – one by one.

Generally speaking, there are two ways to approach debt repayment – the debt snowball method and the debt avalanche method.

The debt snowball method is by far the most popular debt repayment method since it helps you score small wins right away. With this method, you’ll list out all of your debts in order from smallest to largest regardless of their respective interest rates. Once your debts are listed in this order, you’ll work up a budget that allows you to pay the minimum payment on all of your debts except for the smallest one. When it comes to your smallest debt, you’ll pay as much as you can each month until it’s paid off.

As each small balance gets knocked down to zero, you’ll move on to the next smallest balance throwing all you can at it. In the meantime, you’ll continue making minimum payments on the rest of your debts. Over time, your smallest balances will disappear, leaving only your largest balances in their wake.

The debt avalanche method, on the other hand, takes the opposite approach. Instead of listing your debts from smallest to largest, you’ll list your debts by interest rate instead.

With the debt avalanche, you’ll pay the minimum payment on all of your loans with the lowest interest rate every month while paying as much as you can towards the balance with the highest interest rate. Over time, your loans with the highest rates will disappear, leaving only the loans and balances with the lowest interest rates.

With both the debt snowball and the debt avalanche, you will keep powering through until all debt is paid off.

See also: Debt Snowball VS Debt Avalanche: Choosing the Right Strategy for You.

How to Make the Debt Snowball and Debt Avalanche Work for You

With both the debt snowball and debt avalanche methods, a certain amount of self-restraint is required for the process to work. Not only must you stick to the plan and work as hard as you can to repay your debts, but you have to stop digging as well. Here are some tips that can make paying off your debts the hard way a reality:

Stop using credit altogether.

One of the biggest problems people face when they try to get out of debt is avoiding new debt. If you’ve become accustomed to overspending, it’s hard to break that habit and focus on paying off debt instead.

The best way to ensure you don’t dig a deeper hole is to quit using credit altogether while you work your way out of debt. Stick to a cash budget instead if possible, and avoid using credit cards. You can do this!

Make sure your partner or spouse is on board.

If you want to improve your chances for success, it’s smart to sit down with your spouse or partner to make sure everyone is on board. Without their support, you could end up making little progress, or worse, growing your debt load larger over time.

Sit down your spouse or partner and discuss your future, showing them how getting out of debt can improve both your relationship and your lifestyle. With their help, your chances for success will increase tremendously.

Cut your spending to get out of debt faster.

Since you’re in debt and already struggling, it’s safe to say you’re already spending more than you can afford each month. To get out of debt faster – and to give yourself peace of mind – it’s crucial to look for ways to cut your spending every month.

When you first get started, look for the low-hanging fruit. If you’re overspending on food or entertainment, those are areas that are fairly easy to cut. Conversely, you can also check past month’s bank statements for other “budget drains” including lifestyle habits like smoking or shopping.

Stick with the plan until you’re entirely debt-free.

Getting started on the debt snowball or debt avalanche method can feel exhilarating if you are tired of being in debt, but you have to commit to the program for the long haul if you want it to work. If you don’t, you could easily wind up getting off track and racking up more debt.

Final Thoughts

If you desperately want to pay off debt, it’s important to know that debt consolidation isn’t your only option. In some cases, you might be much better off paying your debts off the hard way. In others, a zero interest, balance transfer credit card might help you speed up the process.

At the end of the day, it’s up to you to figure out which option works best for your lifestyle and goals. And no matter what, there is no right answer for everyone. Before you pull the trigger on a debt consolidation or balance transfer credit card, make sure you know what you’re getting into. In addition, you should make sure you understand yourself and your limits.

Debt Snowball VS Debt Avalanche: Choosing the Right Strategy for You.

In the world full of consumer debt and a need for debt payoff strategies, there are two major strategies: the debt snowball and debt avalanche. These strategies are both great because they will help you pay off your debts much faster than just making the minimum payments alone. But, the major difference between debt snowball vs. avalanche is that one focuses on human nature and keeps us motivated and one saves you more money – it’s all about the order you pay off your debts.

There are lots of online arguments about which one is better… people have strong feelings about this kind of stuff… but the truth is they both will have a positive effect on your debt. I mean if it helps us get out of this debt then we should be all for it!

You can use either of these methods for paying off student loans, credit card debt, doctor’s bills, car notes, your mortgage, you name it, any kind of debt.

What does all this snow have to do with paying off debt? Let’s take a look at debt snowball versus debt avalanche when eliminating debt so you can figure out which works best for you.

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Debt snowball method

Dave Ramsey has made this a really popular debt payoff strategy, and his followers preach the debt snowball hard. The reason being is that debt snowball gives you some early wins that motivate you to keep going. You build momentum by focusing on your smallest debts first, then rolling those payments together to focus on larger balances.

If you haven’t read it Dave Ramsey’s The Total Money Makeover it is an excellent book that will step you through how to setup your finances and budget, using the debt snowball to get out of debt for good.

The debt snowball method aims to start with small wins and build momentum over time. Using this method, you start paying off your debt with the smallest balance first, while paying the minimum on the rest.

Here’s how the debt snowball works:

  • Every month you pay the minimum balance on all of your debts.
  • You put as much extra as possible towards your debt with the smallest balance.
  • Once your smallest debt is paid off, you move onto the next one until all of your debts are paid off.

Let’s say you have three student loans with balances of $14k, $9k and $2k. Using the snowball method, you would:

  • Focus on paying off the $2k balance, throwing as much money as possible toward this loan.
  • Pay the minimum on your $9k loan.
  • Pay the minimum on your $14k loan.

It’s important to stay in good standing with all your loans, but the goal is to prioritize the smallest balance and work up to the higher balances regardless of interest rate. In this case, after paying off the $ 2k loan, you’d then focus on the $9k loan before the $14k loan.

The upside is it helps you see results right away and get a boost of motivation. The major downside is that it often takes longer to eliminate all your debt using debt snowball versus avalanche.

Let’s look at some of the pros and cons of the debt snowball method:


  • Starting with the smallest payments first can provide quick wins and you can see it, it feels good.
  • It’s a tried-and-true method to pay off debt.
  • As you eliminate your smaller balances, you can free up extra funds to focus on the next balance.


  • It may take longer to pay off your debt.
  • You could pay more in interest over time.

The debt snowball method is a good choice if you’re dealing with some hardcore debt fatigue and need a boost of motivation. If you go this route, know that you’ll probably pay more in interest since you’re focusing on the smallest balance first rather than the interest rate.

The early satisfaction you get from paying off those smaller debts is what drives you through your debt payoff. Paying off debt can feel exhausting, so that positive feedback early on helps you from getting too fatigued.

When debt snowball can work best

If you have many different types of debt, debt snowball works best with paying off smaller amounts. Think about store credit cards, small loans or when you’ve borrowed money from friends and family.

In one Harvard Business Review study, participants that focus on the smallest balance first admit to feeling like they’re progressing more compared with other methods.

Debt avalanche method

The debt avalanche is about math and what is going to save you the most money over time.

Here’s how the debt avalanche works:

  • Every month you pay the minimum balance on all of your debts.
  • You put as much extra as possible towards your debt with the highest interest rate.
  • Once your debt with the highest interest rate is paid off, you move onto the next one until all of your debts are paid off.

The debt avalanche method requires you pay down the loan with the highest interest rate first while paying the minimum balance on the rest of your loans.

So if you have loans at 7.9%, 6.5% and 4.0%, you would work on eliminating your loan with the 7.9% interest rate first, regardless of the balance. Once you’ve paid it off, you’ll then focus on the 6.5% loan before the 4.0% loan.

Here are the pros and a con of using the debt avalanche method.


  • You save more on interest over the life of the loan.
  • You’ll pay the loans off faster.


  • You may not see wins as fast as you would with debt snowball, which for some can be harder to stay motivated.

When debt avalanche works best

If you have many different kinds of the same debt, such as student loans, debt avalanche might be best for you. Having many different student loans with varying interest rates can be hard to constantly track. Paying the minimum balance every month may not be making a sizeable dent in your payoff plan.

Instead, continue making payments on all your student loans while paying as much as possible to the loan with the highest interest. Then devote that extra cash to the loan with the next-highest interest rate.

Pros and cons of debt snowball vs. avalanche

You’ve probably already gathered what I’m going to say here, but I want to give you a few key takeaways that will help you understand the difference in the snowball vs. avalanche debt payoff strategies.

  • Debt snowball empowers you with some small early victories. You see progress early on, especially if you have some pretty small debts.
  • The debt snowball will cost you more in interest charges over the course of your debt payoff.
  • The debt avalanche is better math – by focusing on loans with larger interest rates, you are saving money.
  • If you’re using the debt avalanche, it can be hard to sustain your motivation.

Which one is best?

When looking at debt snowball versus avalanche, both methods will get you to the same destination, a debt-free life!

Meadow, Away, Panorama, Mountain Hiking

Choosing the right strategy for you depends on your goals and how you’re motivated. Determine the type of saver and spender you are with some questions:

  • Do small wins help you to keep going?
  • Do you have the patience to pay off higher-interest debt to save more in the long run?

Knowing how much you could save can influence your answer. You can use an online calculator like this one from MagnifyMoney, that compares both methods to determine how much you will pay back and how long it will take to get out of debt.

Depending on your interest rates and balances, you could stand to save money and cut off some time from your repayment period by using the debt avalanche method.

But if you have a hard time paying off debt or won’t save a significant chunk of dough, debt snowball may be a good option for you.

Also, you don’t have to choose between one or the other — sometimes a combination of the methods is most effective.

Staying motivated is most important, because the worst result is giving up on you plan or sliding back into debt.

There are no right or wrong answers when it comes to debt repayment. Whether you choose debt snowball, debt avalanche, combine them somehow or choose something completely unique, the key is that you’re consistent and that you have a plan to get out of debt. Like all things personal finance, it’s PERSONAL.

The Bottom Line on Debt Snowball vs. Debt Avalanche

If you are serious about tackling your debt, then pick which method is best for your own situation and personality. The best method is the one you can stick to. If you are a person that needs more motivation to pay off debt, then stick with the debt snowball method.

There are no right or wrong answers when it comes to debt repayment. Whether you choose debt snowball, debt avalanche, some hybrid method or something completely unique, the key is that you’re consistent and that you have a plan to get out of debt.

Either way, snowball or avalanche, you are accelerating your debt payoff. That’s an awesome thing, and that means you can start focusing on other important financial goals. Like buying a first house, retirement or building up your Passive Income!

Let us know what you think in the comments below. Do you use either of these strategies? I personally started with the debt snowball to knockout the smaller credit cards. Then I went after everything else with high interest (High to Low) after I’d built the habit over 4 -6 months of paying everything extra I had toward debt pay down.

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