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Why bother with debt consolidation? Why not just pay off your debts one by one, or just pay them all individually? Well, aside from crunching all your debt into one easy monthly payment, consolidation can speed up repayment by lowering your interest rate, and clearing the debt on all those accounts can actually help your credit rating, even if you haven't reduced the actual amount of your debt.

Consolidating your debt cuts the number of necessary payments to one. This at least minimizes the chance you forget to pay one or more of several credit card bills. Having all your debt under one debt account instead of several vastly decreases the chances of a costly late payment (as long as you make your payments on time of course). It also makes it easy to keep track of where you stand with your total debt. Instead of monitoring several different balances and figuring out how this interest rate or that interest rate impacts your debt, your can easily monitor a consolidated debt load under one balance and one interest rate.

And that interest rate is usually lower than it was on those previous balances. Chances are likely that if you're even considering consolidation in the first place, most of your credit accounts charge relatively high interest rates. Even if a consolidated rate isn't super low, an 8-10% rate could be an improvement over the rates those other cards are charging for portions of your debt. Consolidation can reduce the interest you get charged, increasing the amount of each payment that goes toward reducing your principal balance and getting you closer to paying off the debt. Granted, your consolidated account gets assessed a balance transfer charge (usually 3% of the debt assumed) whenever you transfer debt to the account. But if the consolidated interest rate is a big enough savings over the previous rate, it's often worth adding the fee to the consolidated debt.

But even the act of transferring the balances to a consolidated account alone can help your credit. Every time you transfer a complete balance, the consolidating bank assumes the debt and pays off the previous account. The bank holding that previous account typically considers the payment a complete payoff of the balance.

Yes, you only took the debt and put it somewhere else. But from the original card company's point of view, you paid the balance off. This information gets relayed to the credit bureaus, which can boost your credit profile. Even more so, clearing the previous balance improves your standing with that bank, which may then reward you by raising the card's credit limit and/or reducing the interest rate. Sure, you don't have to use the card again (maybe you already cut it up). But the improved credit account could come in handy if you ever do. And if that bank ever offers a low APR balance transfer for the account, you could use that account to re-consolidate debt if need be.

Consolidation isn't necessarily a lateral move for debt. Consolidation simplifies the repayment process and usually reduces the amount of interest you pay, speeding up repayment. Plus the transfer process reflects well on you with the banks of your previous accounts, which can lead to better rates, higher credit limits and even special offers from those card companies in the future.

Learn more about this author, Steven Gomez.
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