Debt Consolidation

Definition

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of taking out a new loan to pay off credit card debt, student loans, and other liabilities, often at a lower interest rate.

Example

You have three credit cards with balances of $2,000, $3,000, and $5,000, each with high interest rates. You take out a single personal loan for $10,000 at a lower interest rate to pay off all three cards, leaving you with just one monthly payment.