Definition
Combining several debts into one new loan or card, ideally with a lower rate or a single payment that is easier to manage.
What it means
Debt consolidation replaces multiple debts, often credit cards, with one new debt such as a personal loan, a balance transfer card or a home equity loan. It can lower your interest rate and simplify payments, but it does not reduce the amount you owe, and fees or a longer term can make the total cost higher. Using home equity turns unsecured card debt into debt secured by your home, which puts the home at risk if you cannot pay. The FTC and CFPB warn about debt settlement and relief companies that charge large fees; for-profit debt relief firms selling by phone may not charge fees before they settle a debt. Nonprofit credit counseling agencies can offer debt management plans. Consolidation works best when new card spending stops.
Example
Three cards totaling $12,000 at an average 24% APR cost about $2,880 a year in interest. A 3-year personal loan at 12% has a payment of about $399 and total interest of about $2,350 over the whole loan.
Illustrative numbers only. Your situation will differ.