Debt consolidation is a debt management strategy that can help you pay down or eliminate your debts. It involves combining debt from multiple sources — for example, across multiple credit cards or loans — into a single loan or credit account. For example, an individual with three outstanding credit card debts of $500, $2,000, and $2,500 could consolidate their debt using a single $5,000 loan or line of credit.

Depending on many factors, including the status of your current credit obligations and your payment behavior, debt consolidation may have a third benefit: the opportunity to improve your credit score over time if payments are made in full and on time. However, debt consolidation could also adversely affect your credit score, especially in the short term due to the hard credit inquiry at the time of application.

Debt consolidation loans may be useful for managing high-interest revolving lines of credit and loans. These debts include credit cards, medical bills, and personal loans.

1. Simplifying Debt Repayment: Consolidating multiple debts into one loan makes it easier to manage your debt. Instead of making multiple monthly payments, you can pay down your debt with a single payment to a single creditor. A streamlined plan may make debt repayment more manageable.
2. Lowering Interest Rate & Monthly Payments: You can choose to consolidate higher interest loans into a lower interest loan, reducing the amount of interest paid each month. Paying less interest means more of your payment will go to paying the principal — the balance you owe — to help you get out of debt faster. Reductions in your monthly payment could also come from selecting a longer repayment period, however choosing this option may result in paying more in interest over time.