Debt consolidation combines multiple debts into a single loan with one monthly payment, ideally at a lower interest rate. This simplifies your finances by replacing several bills with one and can reduce the total amount of interest you pay if the consolidation rate is significantly lower than your current rates.

The most common forms of consolidation are personal loans, balance transfer credit cards, and home equity loans. Personal loans offer fixed rates and terms, balance transfer cards may offer 0% introductory rates for 12-21 months, and home equity loans offer lower rates but put your home at risk if you cannot repay.

Before consolidating, compare total interest paid under both scenarios, not just the monthly payment. A lower monthly payment on a longer term can actually cost more in total interest. Also factor in origination fees, balance transfer fees, and whether the lower payment frees up cash to pay down the principal faster.