What is the first step to consolidate my debt?

The first step is taking a full written inventory of every debt you owe before you apply for anything. Most people skip this and start shopping for a loan with rough numbers in their head. That's how borrowers end up with consolidation loans that don't actually save money or that miss debts entirely.

The inventory you need. One sheet of paper, or a simple spreadsheet, with these columns for every debt: creditor name, account number (last four digits is fine), current balance, APR (look at your statement, not what you think it is), minimum monthly payment, type of debt (credit card, auto loan, personal loan, medical, etc.), and current status (current, late, in collections, charged off).

Where to find the numbers. Pull a free credit report from AnnualCreditReport.com. This is the only federally authorized site for free reports from all three bureaus, and you can pull weekly under the post-COVID expanded access policy. Cross-reference with your most recent statements. Some debts (especially medical bills under 12 months old or debts not yet sold to collectors) won't show on credit reports.

Calculate your weighted-average APR. Multiply each balance by its APR, sum those, then divide by the total balance. For example: $5,000 at 22% + $3,000 at 18% + $2,000 at 15% = $1,540 / $10,000 = 15.4% weighted average. This is the number any consolidation loan needs to beat to actually save you money. Borrowers who don't calculate this often consolidate at rates that look low but are higher than what they were already paying on average.

Identify what's eligible to consolidate. Not every debt should go into a consolidation loan. Federal student loans (almost never; you'd lose IDR, PSLF, and forgiveness options). Auto loans (rarely; you'd convert secured debt to unsecured but at a higher rate). IRS tax debt (no; the IRS has its own programs at lower cost). Credit cards, personal loans, medical debt, and unsecured store cards are the typical candidates.

Run the DTI calculation. Add up all monthly debt minimums (including the rent or mortgage). Divide by your gross monthly income. Lenders generally want this under 40 to 50 percent. If you're already over 50%, a consolidation loan is hard to qualify for and you may need to look at credit counseling or settlement instead. See CFPB's guidance on DTI.

Pull your credit score. Most card issuers and many banks now show a free FICO or VantageScore in their app. Credit Karma is free but uses VantageScore 3.0, which can run 20 to 50 points different from FICO. For pre-qualification accuracy, use the score your card issuer shows. Below 660, your rate options will be limited; below 600, the math often doesn't work for unsecured consolidation.

Decide what you actually want consolidation to accomplish. Lower interest rate? One payment to track? Faster payoff? A lower monthly payment because cash flow is tight? These goals can pull in different directions. A long-term consolidation loan can lower the monthly payment but cost more total interest. A short-term loan saves interest but raises the monthly cost. Knowing the goal up front prevents picking the wrong term.

Consider non-loan alternatives before applying. A 0% APR balance transfer card (15 to 21 months interest-free with a 3 to 5 percent transfer fee) often beats a personal loan if you can pay it off in the promo window. A nonprofit credit counseling agency can negotiate concession rates of 6 to 9 percent through a debt management plan, often better than a personal loan rate for borrowers with sub-720 credit. See consolidation loan vs. DMP.

Then, and only then, shop for loans. Pre-qualify with three to four lenders within a 14-day window (multiple soft pulls in a 14- to 45-day window are typically treated as one inquiry by FICO). Compare APR (not just rate; APR includes origination fees), term, and total interest cost. The lender with the lowest monthly payment isn't always the cheapest overall.

Inventory first, math second, applications third. Borrowers who follow that order make better decisions than borrowers who start with the loan ad they saw last week.