How to Create a Debt Management Plan

Feeling overwhelmed by debt? You’re not alone. Household debt continues to rise, but the good news is there’s a way out. With research and proper planning, you can create a plan to eliminate your debt and work toward financial freedom.

Get Control Over Your Debt

If you’re struggling with debt, the first step is to ensure you have a clear view of everything you owe. Organize all your debts in a spreadsheet or monthly budget to see how much you need to pay each month and how much money you have available to make those payments.

If you’re coming up short on cash to make the necessary payments, you’ll want to reach out to lenders to see if you have options to lower your payments, refinance, or otherwise alter the terms of your repayment to avoid late fees or debts going into collections. This will cost you more and hurt your credit.

Even if you’re able to make payments, high interest rates can cost you more. Review the terms of your debts and reach out to lenders to see if there’s a way to lower your interest rates.

If you’re struggling to stay organized or make payments, sometimes debt consolidation can make managing your debt easier.

Consider Debt Consolidation

Debt consolidation combines multiple loans or debts into one single loan. While it’s not for everyone, for some who are overburdened with debt, consolidating can help streamline finances by organizing multiple payments into one, often lowering interest rates and/or monthly payments.

Debt consolidation won’t lower the amount of your outstanding debt. However, by giving you lower monthly payments or interest rates, it can help you save over time.

Four Ways to Consolidate Debt

While there are firms that will work with you specifically on debt consolidation, there are also steps you can take on your own to streamline your debt. These include balance transfers, student loan consolidation, home equity loans, and personal loans.

1. Balance transfers: If you have high-interest debt and would like to condense payments into one or possibly lower your interest rate, consider a balance transfer to a credit card like our Classic Card with a lower interest rate. Check to ensure the money you save during any introductory period isn’t outweighed by fees and the standard interest rate after the balance transfer rate expires.

For those who qualify, PSECU offers balance transfers with a competitive promotional rate to help you knock out high-interest debt. For a limited time, enjoy 0% APR* through June 30, 2027, on balance transfers that post between January 1 and June 30, 2026. A 5% balance transfer fee applies to each transfer that posts to your account during the promotional period. After the promo ends, you’ll enjoy a low 12.90% APR (subject to change). To apply or learn more at psecu.com/balancetransfer.

2. Federal student loan consolidation: Student loan consolidationis available for eligible borrowers with federal student loans. The federal consolidation program allows you to make one monthly payment and lock in a fixed interest rate instead of a variable rate. The interest on a federal consolidation loan is often lower than on other student loans, depending on when the original loan was disbursed. If you’re interested in pursuing this path, you can find more details here.
3. Home equity loans: Some people consolidate debt by taking out a home equity loan, also known as a second mortgage. A home equity loan allows you to borrow against a percentage of the equity you have in your home. The amount you may borrow depends on your equity, the home’s market value, and any restrictions by your lender.

A home equity loan can be used to pay off consumer debt such as credit cards and car loans, which tend to have higher interest rates. Like consolidating student loans, consolidating consumer debt with a home equity loan allows you to pay off existing loans and make a single monthly payment. Of course, it’s important to make sure you can manage payments on a second mortgage, as you’re using your home as collateral.

4. Personal loans: If you don’t own a home or don’t have enough equity built up in your home to borrow against it, you have a few other avenues for consolidating consumer debt. One option is to apply for a personal loanand put the amount of the loan toward paying your current higher interest rate debt.

When Debt Consolidation May Not Be Worth It

Although debt consolidation can be the right option for many, for others, it may not be worth it. Below are a few signs that suggest debt consolidation may not be a good choice for you.

• You’re not ready to face your debt. If you’re not yet committed to avoiding future debt, using a consolidation loan to pay off your current obligations will help you in the short term, but it won’t lead to lasting changes in the long run. In some cases, people consolidate their loans only to find themselves deep in debt once again a few years later. Until you change your perspective on (and approach to) borrowing money, debt consolidation will only be a temporary fix.
• Your debt is almost entirely paid off. If you’re nearing the end of payments on your loans, consolidating your debts may simplify your life slightly, but the process of taking out a new loan and paying off your current ones may be more trouble than it’s worth.
• The interest rate isn’t so great. Consolidating your debt doesn’t always lead to a significantly lower interest rate. For example, under the Federal Student Loan Consolidation program, the interest rate you end up with is the weighted average of the interest rates on your current loans. If your loans have similar rates, consolidating them may not lead to a considerably lower monthly payment. Also, depending on your credit, you may not be able to get the lowest interest rate possible on a personal loan or credit card balance transfer.
• The fees are high. If you work with a debt consolidation company, you can expect to pay fees, and in some cases, those fees can outweigh any benefits of consolidating your debt.
• Your minimum payment may be higher each month. Depending on the terms and rate of the consolidation loan, you may end up spending more each month on debt payments. That’s not necessarily a bad thing if it means you’ll be out of debt sooner. But sometimes, it may be easier to pay more toward your current individual debts each month.

Risks of Debt Consolidation

Before you make any decisions about what to do with your money, it’s essential to understand what risks are involved and what the extent of those risks may be. Debt consolidation isn’t the perfect solution for everyone, and it may cause issues if you aren’t careful. The risks you might face depend significantly on the type of debt consolidation loan you decide to use.

• You could put your collateral at risk. Although a home equity loan can be a way to consolidate debt, it does introduce one significant risk to the equation. If you trade unsecured debts, such as credit cards or medical bills, for a second mortgage or home equity loan and can’t pay, the creditor can come after your home, which is collateral on the loan.
• You could end up with more debt. If you haven’t made a budget or come up with a plan to avoid additional debt in the future, a consolidation loan, especially a balance transfer card, can be a gateway to additional debt. If you haven’t fully committed to becoming debt-free, you may be tempted to use a loan or credit card to make additional purchases you can’t afford because you’re working on paying down the existing debt. If you do open a new credit card to help pay off your debt, it’s best to lock it away so that you aren’t tempted to use it for new purchases.
• You could end up working with a dishonest company. Whether on the radio, on a roadside billboard, or in a newspaper, you’ve probably seen a company advertising its debt consolidation services or promising to help you get out of debt. While these companies may offer something similar to a debt consolidation loan, you’ll want to pay careful attention to the details of the program or service and do your homework. Although reading reviews, checking credentials, and getting references can help you avoid scams, they are relatively common in the debt relief industry. If you’re not careful, you may end up working with a company that charges extra fees, doesn’t actually deliver your payments to your creditors, or doesn’t have your best interest in mind. Get as much information about the company as possible and make an informed decision before you agree to work with it.

How Does Debt Consolidation Affect Your Credit?

Debt consolidation will have some effect on your credit score, but do debt consolidation loans hurt your credit? The type of effect it has depends on the type of program you choose to use. If you decide to apply for one of our debt consolidation loans, such as a personal loan or home equity loan, we’ll pull your credit report and make what is called a “hard inquiry.”

The hard inquiry and the presence of a new loan on your credit history will likely cause your score to drop a bit. Usually, the drop is temporary, and since you’re working on paying off your loans, it could be worth it in the long run. By the time you’re finished paying off the consolidation loan, your credit score will typically level out.

If you’re considering working with a professional credit counseling service or program, you should discuss how the program may impact your credit score, along with their terms of use, so you understand what restrictions and benefits will be offered.

Is Consolidating Debt Worth It?

Depending on your circumstances, debt consolidation may be worthwhile. You may want to consider it if you’re ready to create a budget to get your spending under control and avoid future debt. Just make sure that you fully understand the pros and cons of your options.

Looking for more money management tips? Check out our resource center for more financial tips, budgeting tools, and plenty of ways to keep your financial goals on track.

*PSECU Visa® Classic Card/Visa® Alumni Classic Card:  Promotional Visa Balance Transfer  Rate Offer– PSECU is offering a promotional rate of 0.00% APR on all Visa balance transfers that post to your account on January 1, 2026 through June 30, 2026 (“promotional period”). Any Visa balance transfers that post to your account after June 30, 2026, are not eligible for this promotional rate offer. The promotional rate will continue to apply to Visa balance transfers made during the promotional period until June 30, 2027. Thereafter, any remaining  unpaid portion of your original balance transfer(s) made during the promotional period will be subject to the current APR for balance transfers, which is 12.90% APR as of 01/01/2026 and is subject to change at any time. A Balance Transfer Fee equal to 5% of each transfer will be charged when the transfer posts to your account. This fee is separate from any interest or other charges. The total of the balance transfer amount and the Balance Transfer Fee cannot exceed your available credit limit. APR  denotes Annual Percentage Rate. Visa balance transfers are limited to the available credit of your Visa credit limit. PSECU Visa Business Cards are not eligible for this promotional rate offer. Payments will be applied as stated in your Visa^® Classic, Visa^® Alumni Classic, and Secured Visa® Consumer Credit Card Agreement and Disclosure. A minimum of $250 must be requested for balance transfers through digital banking. The 0.00% APR  promotional offer cannot be used to pay off any PSECU loan or be made payable to cash, yourself, any joint owner(s), or co-maker(s). Balance transfers access credit under the terms of your Visa^® account as stated in the Visa® Classic, Visa® Alumni Classic, and Secured Visa® Consumer Credit Card Agreement and Disclosure.