Millennial Series Part IX:  Keys to Consolidating Debt

Posted on Mon, Oct 30, 2017 ©2021 Drucker & Scaccetti

D&S Marketing_020.jpgBy: Cecilia Fernandes


The millennial generation has a crippling amount of long-term debt. Studies show at least two-thirds have one source of long-term debt and one-third have at least two forms of long-term debt. The majority of this debt comes from student loans. A close second is credit card debt. In this post, The Tax Warriors share tips about reigning in and consolidating debt.


Step one in consolidating debt is to know how much debt you have and the terms of that debt (interest rate and length of the loan).  This information will help you create a realistic financial plan to become debt free.


Once you complete step one, you can start thinking about consolidating your debt. Consolidation works best for high-interest rate debt, like credit cards. When you consolidate, you roll multiple high-interest rate debt into a manageable lower rate interest single payment per month, which, in theory, should allow you to pay your debt off faster.


Consider consolidating your debt if:

  • Your total debt does not exceed fifty percent of your income;
  • You have a high enough credit score to qualify for a zero-percent credit card or low-interest debt consolidation loan;
  • You have a consistent cash flow to make debt payments; and
  • You have a realistic plan and personal budget which you’re willing to adhere to so you do not incur high-interest rate debt in the future.

Here are four ways you can consolidate debt:


  1. Transfer all your credit card or other high-interest rate debt onto a zero-percent interest balance transfer credit card so you have one monthly payment which will all go towards principal instead of principal and interest.

Pay attention to the terms to ensure you can pay off the full balance before the 0% rate increases.  Sometimes you can continue to roll your balances to new zero-percent cards when the 0% term on one card expires, but that isn’t guaranteed.  Also, pay attention to the fees relating to the balance transfers.  They can add up, but often are less than the interest you would be paying otherwise.


  1. Get a fixed-rate personal loan and to use the money to pay off your debt, and then pay back the loan in a set term of installments.

This may be more difficult if you do not have a good credit score, however intra family loans work well if feasibleTalk to your family and see if they would be willing to help you with this important financial planning tool.


  1. Secure a home equity loan

This will only be feasible if you own your home and have sufficient equity to borrow against.


  1. Secure a 401(k) loan

This will only be feasible if you have a large enough balance in your account and your employer plan allows for loans.  Also, if you are unable to pay the loan off when due, the loan will be treated as a distribution and will be subject to tax and early withdrawal penalties.  Read more about retirement savings in our recent blog here.


The options available to you will vary depending on your financial situation.  For example, the last two options above can be considered risky and are probably not the best for many millennials.


Another option, specific to student loans is the ability to consolidate federal student loans into one loan called a Direct Consolidation Loan. A Direct Consolidation Loan has a fixed interest rate for the entire life of the loan. Most federal student loans are eligible for consolidation. Private education loans are not eligible for consolidation. However, some repayment plans for Direct Consolidation Loans take the total amount of your education loan debt, including private education loans, into consideration to determine how much time you have to repay your Direct Consolidation Loan. Below is a list of federal loans that can be consolidated.

  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Nursing Student Loans
  • Nurse Faculty Loans
  • Health Education Assistance Loans
  • Health Professions Student Loans
  • Loans for Disadvantaged Students
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans


Millennials who should consider consolidating their federal student loans are those who have multiple loans in repayment or in the grace period, with multiple loan servicers. Consolidating your loans will help simplify your life because you would have one monthly student loan payment to make and may lower your monthly payment due if you are able to stretch out the length of the loan.  Doing so may cause you to incur more interest over time, but may also allow you to free up cash flow to pay down higher interest rate debt (read: credit cards and private student loans) faster.  The application process to consolidate your loans is free. You can apply for a Direct Consolidation Loan at


Even though private student loans cannot be consolidated, you may be able to refinance them and secure a lower interest rate. Your credit score, income, job history, and educational background will play a role in the interest rate you may qualify for if you refinance. It is important to compare multiple refinance lenders to ensure you are getting the lowest rate available and not take the first offer you see!


Now is the time to take control of your debt!  Each day you wait, interest builds. Remember, you do not have to do this alone!  Consult with a financial advisor to help in your decision-making process surrounding debt consolidation.  Often, they are aware of opportunities and pitfalls which may help you find the most advantageous way to create a plan to be debt free.

Topics: Debt, loans, student loans, interest rate, millennial, consolidating debt, credit card debt, personal loan, home equity loan, stafford loans, PLUS, FFEL, private student loans, long-term debt, 401(k) loan, direct consolidation loan

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