Managing debts is one of the most important strategies when it comes to financial management. It is one of the key skills for anyone who wants to be financially successful, especially when dealing with multiple loans. Otherwise, you might find yourself in a huge financial mess as a result of piling up debts.  

One of the best methods for managing multiple loans is debt consolidation. This is a strategy that most people dealing with multiple loans use to streamline payment. So, what is debt consolidation, and what’s the right practice? Well, this guide provides all you need to about debt consolidation. 

What is Debt Consolidation? 

Debt consolidation is a strategy that helps you to merge multiple debts into a single loan. Instead of making separate payment for your debts, you can have all the loans paid from a single lender. With this strategy, a financial institution of your choice will provide a loan that will pay off all your debts. So, you will be left with just one loan to pay. Consolidated loans usually come at a lower interest rate, making them an ideal option for many.  

Although it will not wipe out your debts, it will make paying loans less expensive. However, the process can take a lot of time since you need to apply by sending a request to a bank. The application might be approved or declined. So, you need to get several things right to qualify. 

Best Practices In Debt Consolidation 

Debt consolidation is the best thing to do if you are dealing with multiple loans. It enables you to concentrate on a single loan rather than dealing with loans left, right and centres. However, it may not be the best option for everyone, especially when the new loan becomes more expensive. You, therefore, need to get several things correct to go this route. Here are the best practices when consolidating loans: 

1. Understand the Impact  

The first thing you need to consider when planning for debt consolidation is the impact it will have on your financial life. As mentioned above, the consolidation of loans does not work for everyone. There are some cases when consolidating will make the loan more expensive compared to the original loans. Additionally, a longer payment duration may mean more interest on you. Therefore, you need to understand the content of the loan before signing the deal. Will you be paying more or less? If the consolidated loan will become more expensive, avoid it. 

Couple managing debt

2. Play Around With Numbers 

Debt consolidation requires a lot of calculations to get the best deals. You need to play around with the loan percentages. There are some of the loans that can be left out of the consolidation due to their interests. For example, let’s say you have a student loan with a 4.45% interest rate, several credit cards at 16-17%, a balance transfer card at 13%, and a personal loan of 9%. It will be more beneficial to leave the low-interest loans, such as the student loan out of the consolidation. That’s because it will be cheaper to pay low interest yourself than consolidating it. 

3. Available Choices 

There are various options that you can pick from when it comes to debt consolidation. So, make sure that you have checked all of them to choose the best one for you. Here are three main options you can select from:  

A debt management plan. These plans are developed by your creditors and a non-profit debt counselling agency. They are plans that aim at consolidating your loan at a lower rate. However, they have a longer payment period, which could make the loan a bit expensive. But you enjoy a reduced payment pressure, especially if your income levels have dwindled. 

Debt Settlement Companies. These are organisations that negotiate your debt with your creditors for you pay a lump sum that’s less than your total debt. Once the deal is reached, you will be required to deposit money in the savings account until you accumulate the agreed amount. However, you need to get all the information about the deal. You need to know the time for payment and if there are other hidden charges. You must also try to avoid scammers. 

A balance transfer. The strategy including pooling your money and putting it in a balance transfer account. The transfer account usually gives you a grace period, which you can use to pay the principal. However, make sure that you’ve understood the APR rises after the introductory or grace period. You can also have your loans consolidated with a line of credit, such as home equity.  

4. Avoid Taking Up New Loans 

Last but not least is to avoid taking up new debt. It can be tempting to take up another loan since you are receiving one monthly bill. However, you must avoid all these temptations and stick to the plan of being debt-free. Make sure that you have developed a new financial plan to take you through the time you will be paying off the consolidated loan.  

Main Reason For Declined Application 

man consolidating his finances

Application for debt consolidation is not a guarantee that you will be approved. Here are three main reasons why you can be declined: 

1. Lack of Security 

When consolidating debts, the financial institution often asks for collateral and security. It is a common request for people with debt paying problems. The security is to ensure that the lender doesn’t lose money, even if you are unable to pay.  

2. Debt Problems Troubles 

If you have a poor credit score, lenders may be unwilling to consolidate your debts. If you have been recording late payments or debts, you will have a problem with a low credit score. Additionally, high balances owning can also make your application denied. 

3. Too Much Debt 

If you have too much debt, no financial institution will be willing to deal with you. If your debts exceeded 30-35% of your monthly income in Australia, most lenders would avoid you. If you are already at 35%, your request may be declined. 


Paying multiple debts can be frustrating. With the payment different paying dates, you can have a lot of financial problems. That is why debt consolidation is the best deal for people paying multiple loans. However, you must be very careful because loan consolidation can be expensive. Therefore, negotiate the best deal with the lender. A local qualified financial planner can help you choose the best consolidation package for you. 

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