One option to help handle your debts and manage them more effectively is to consolidate them. At first glance that can sound very appealing as you won’t have to deal with many different debt repayments and can focus on just the one instead may appear to be an excellent option. However there is a bit more to it than that.

It is important for you to realize that debt consolidation is not going to magically fix your debts. Instead what it will do is allow you to replace your current debts from multiple sources with different interest rates with a single debt that has a single interest rate.

In order for that to be a good option, it needs to fulfill a number of criteria:

  • Interest rate needs to be lower

On a very basic level, the only way you are going to ‘save’ money with a debt consolidation loan is if your interest rate (i.e. Annual Percentage Rate (APR)) is lower than that of your current debts. For that to happen, odds are you’ll need to have good credit rating, so that lenders are willing to offer you a loan at a low APR.

  • Repayment must be possible in a fixed period

Once you do consolidate your debts, you need to be able to pay them off within a fixed period. The shorter that period, the better (generally) – and your total debt and monthly income are both important factors to consider in that regard.

Assuming you feel that you meet both those criteria – the next thing that you’ll want to look at are the debt consolidation loans that are available to you, and the conditions that are placed on them. Keep in mind that there are other factors that will affect how appealing a loan is, including any fees, penalties, and so on.

More importantly, you need to remember that consolidating your debts with a loan often requires additional collateral be placed towards it, such as your property. That can have major implications as while you may be struggling with credit card debt, your property is not at risk – but if you consolidate that debt with a loan that is secured with it, defaulting could expose it.

Considering all of that, one thing should be clear: The best time to consolidate your debt is if you’re going to be able to make smaller repayments (due to lower interest), and intend to fully commit to paying off all your debt.

That commitment is arguably the most important part, as without it consolidating your debt may end up worsening your situation rather than helping it. As such, before you proceed you should carefully evaluate your situation and decide whether consolidation is really the best option for you to manage your debt – and how likely you are to be able to make the changes that are necessary in order to ensure you’re able to pay it all off completely within a fixed time frame.