Debt consolidation is a type of of debt refinancing which entails the taking out of one loan to pay off many others loans.
This commonly refers to a personal finance process of individuals addressing high consumer debt, although occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or government debt.
Banks, credit unions, and installment loan lenders may offer debt consolidation loans.
These loans convert many of your debts into one loan payment, simplifying how many payments you have to make.
These offers also might be for lower interest rates than what you're currently paying.
If you do it right, debt consolidation might slightly decrease your score temporarily.
The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit.
But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.
Taking out a debt consolidation loan can help put you on a faster track to total payoff and may help you save money in interest by paying down the balance faster.
This is especially true if you have significant credit card debt you carry from month to month.
Four types of debt are commonly consolidated: credit card debt, student loan debt, medical debt and high-interest personal loan debt.
You may reduce the overall cost of repayment by securing better terms and interest.
You'll also have a single payment to keep track of instead of several.