Debt consolidation combines multiple debts – credit cards, personal loans, and similar balances – into a single new loan or credit line, ideally with a lower overall interest rate and one monthly payment instead of several.
Common consolidation methods include a personal loan used to pay off other debts, a balance transfer credit card with a low introductory rate, or, for homeowners, a home equity loan.
Consolidation can genuinely lower your total interest cost if the new rate is meaningfully lower than your blended average rate across existing debts, but it isn’t automatic – some consolidation loans carry fees or a similar rate.
One risk worth understanding: consolidating credit card debt into a loan clears those card balances, but if the cards stay open and get used again, it’s possible to end up with both the consolidation loan and new card debt.
Consolidation works best paired with a plan to avoid accumulating new debt – otherwise it addresses the symptom of scattered payments without fixing the underlying spending pattern.