Debt consolidation works by combining several debts into one new loan. Instead of making multiple payments each month to different lenders — often with different due dates, balances, and interest rates — you take out a single loan or line of credit and use it to pay off those debts.
Once the consolidation loan is in place, you’ll have:
- One monthly payment instead of many.
- One interest rate that applies to the full balance.
- A clear repayment plan, often with a fixed end date.
For example, if you have three credit cards with high interest rates, you could take out a personal loan with a lower rate. You’d use that loan to pay off the credit cards and then make just one payment each month toward the loan.
The main goal of debt consolidation is to simplify your finances and, ideally, lower the amount of interest you pay over time. However, whether it saves you money depends on your credit score, the loan terms, and your repayment habits.
