Combining multiple debts into a single loan with potentially lower interest rates.
Debt consolidation is the process of combining multiple debts—typically credit cards, personal loans, and medical bills—into a single new loan. The goal is usually to secure a lower interest rate, reduce the total monthly payment, or simplify finances by having one payment instead of many. Methods include taking a personal loan, using a home equity loan, or using a 0% balance-transfer credit card. Consolidation doesn't eliminate debt; it restructures it. While consolidation can lower interest costs and monthly payments, there are costs (fees and closing costs) and risks—extending the repayment term means paying interest longer, and secured consolidation loans put collateral at risk. Consolidation is most effective when combined with behavior change to avoid re-accumulating debt.