How To Consolidate Debt & Keep Your Home

Debt can be overwhelming. On top of a large mortgage, you may also owe multiple credit cards, auto payments, and personal loans. All of these debts carry their own interest rate, and if they are not paid, can quickly drag down your credit score and drain your bank accounts. You need to know how to consolidate debt, especially if you want to keep your home and prevent your credit score from plummeting.

Good news: there are plenty of ways to consolidate debt. Let's take a closer look.

What Is Debt Consolidation?

Debt consolidation, put simply, means taking out one new loan instrument or line of credit and then using that money to pay down all or many of your existing debts.

Here’s an example:

  • Imagine that you have four types of debt currently affecting your credit score and your finances: a credit card payment, a personal loan, an auto loan, and a student loan. Combined, all of these debts total $75,000.
  • Each of these debts has its own interest rate, annual fees, and other expenses.
  • Instead of paying each of these debts separately, you take out a debt consolidation loan (one of the best strategies for tackling multiple debts) for $75,000. You take the money from the debt consolidation loan, pay off each of the outstanding debts, then only have one monthly bill remaining: the bill for the debt consolidation loan.

By practicing debt consolidation, you can make your financial situation much more manageable and, in the process, reduce how much money you have to pay every month.

In many cases, the new repayment loan or line of credit you use will be far better than the previous loans you had under your name. 

Such a debt consolidation loan might have:

  • A lower interest rate
  • Better repayment loan terms
  • Few or no fees and better loan payment due dates

In the long run, this can have a significantly positive impact on your credit history, allowing you to build up good credit on your credit report in no time.

Why Consolidate Debt?

There are several big reasons to consolidate your debt. The benefits of debt consolidation include:

  • Reduced expenses via fewer interest rates. When you have multiple debts accumulating interest, you have to pay much more over those collective debts' lifespans
  • Easier time managing your finances. It’s much easier to track one single monthly payment, for example, as opposed to four or more.
  • Faster credit recovery. Every loan or line of credit you have open under your name contributes to a decreased credit score. By paying off existing debts and having just one or two loans remaining, your credit score will rise much faster than it would otherwise. That’s because having fewer debts under your name will reduce your credit utilization, which looks good in the eyes of the credit bureaus.
  • Reduced debt-to-income ratio or DTI. This is the percentage of your monthly income that goes toward paying debts.

Above all else, consolidating your debt can provide you with excellent peace of mind. If debt settlement isn’t among your debt consolidation options, there are other debt relief strategies you can pursue with a bank or credit union.

What Are Some Methods of Debt Consolidation?

If debt consolidation sounds like a good strategy, great news: there are several ways in which you can consolidate debt.

Use a Balance Transfer Credit Card

A balance transfer credit card is a special type of credit card with a 0% introductory annual percentage rate or APR. That 0% APR applies to any balance transfers for a set timeframe, usually anywhere between nine months and 21 months.

With a balance transfer credit card, you can transfer all of your debts to the new credit card, then pay off that debt throughout the introductory period. If you do this smartly and quickly, you can avoid paying interest! Therefore, this can be a fantastic tool if you have plenty of high-interest debt that you are struggling to pay.

Just keep in mind that balance transfer credit cards do have credit limits, and you may have to pay balance transfer fees depending on how much money you put onto the new credit card. You’ll also need to make the minimum payments necessary as you pay down this credit card account.

Take Out a Debt Consolidation Loan

Alternatively, you can look into a debt consolidation loan. As their name suggests, debt consolidation loans are special loans intended to be used to pay off multiple existing debts. Then, you’ll just have one loan remaining with one monthly bill.

On the downside, debt consolidation loans are usually only appropriate if you have a decent credit score, as you’ll otherwise be saddled with a potentially high interest rate. Furthermore, you should watch out for origination fees attached to debt consolidation loans. Some lenders charge very high origination fees, potentially up to 10% of the loan’s total amount!

Try a Debt Management Plan

Many nonprofit credit counseling agencies offer debt management plans or DMPs. Put simply, a debt management plan can help you learn how to manage your debt. This is a good strategy if you need additional financial literacy or you need help learning how to pay down small debts one at a time, close unused credit cards, and so on.

Leverage Home Equity

In addition to the above methods, you can leverage your home’s equity to pay down debts or consolidate your loans in a variety of ways.


A HELOC or home equity line of credit is exactly what it sounds like — a line of credit you draw on to borrow against the equity you’ve built up in your property. With a HELOC, you can immediately take that money and pay down existing debts, then simply pay down the remaining balance in your HELOC like you would pay down the balance for any credit card or line of credit.

However, keep in mind that most lenders only allow you to borrow up to 85% of the equity in your property for a HELOC or home equity loan (see more below). HELOCs also sometimes charge annual fees, which can add up over time.

Home Equity Loan

A home equity loan is a traditional loan instrument that borrows against your house’s equity. Like a HELOC, you can use a home equity loan to immediately get fast access to cash to pay down your existing debts. Then, you’ll just have one monthly payment toward your home equity loan.

With a home equity loan, you can put your house at risk, and you can only borrow up to the value of 85% of your home's total equity. Keep in mind as well that home equity loans charge closing costs of between 2% and 5% of the loan amount.

Co-Ownership With Balance

If none of the above options are suitable for you, consider co-owning with Balance Homes. If you’re approved for our homeownership program, we’ll replace your mortgage loan with an equity investment — meaning your mortgage will be paid off. Instead, you'll make one monthly payment to Balance that covers your occupancy of the home and your share of the insurance and taxes.

Balance works with their homeowners to try and find the right solutions. If a homeowner is afraid of falling behind, Balance may allow them to sell additional portions of equity to avoid setbacks while their credit recovers. Balance’s program allows you to keep your home and access your equity to consolidate debt, make home repairs, and build up your credit and savings.

Contact Balance Today

In the end, any of the above debt consolidation methods and techniques could be helpful tools to help you reclaim control over your bank account and your credit score. However, co-owning your home with Balance may be the best long-term solution if you are facing financial difficulties.

With Balance, you'll have the opportunity to pull yourself out of your debt load, repair your home, pad your savings, and much more. Contact us today to see how we can help you not just consolidate your debt, but pay it off for years to come.


What Is Debt Consolidation and When Is It a Good Idea? | Investopedia

What do I need to know about consolidating my credit card debt? | Consumer Financial Protection Bureau

What is a Balance Transfer on a Credit Card? | Equifax

Is a Debt Consolidation Loan Right For You? | Experian