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Debt consolidation

Debt consolidation is the process of combining a group of loans into a single larger loan, ideally at a lower interest rate.

Expanded Definition

Debt consolidation is one strategy for resolving the problem of unmanageable debt, which typically involves credit card debt at high interest rates.

Debt consolidation involves securing one loan, at a manageable interest rate, that is used to pay off all other debt. It therefore simplifies the paperwork and tends to reduce overall monthly payments. One source of debt consolidation is a home equity loan, but personal loans, auto-refinance loans, and specialized debt-consolidation services are all options for consolidating debt.

Although debt consolidation can help borrowers get back on their feet, if the borrower doesn't control his or her spending prior to and throughout the debt consolidation process, the problem is likely to continue and worsen.

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