Debt Consolidation

Debt consolidation combines several debts into one loan and repays them through it. The aim is replacing multiple high-rate debts with a single lower-rate one.

There are two effects: less interest, and a single due date that reduces the risk of missing a payment. The more high-rate debt, such as card borrowing, the greater the benefit.

Consolidation often extends the term, though. Lower monthly payments feel easier, but total interest can rise. Both the term and the total have to be checked.

The biggest danger is using the freed-up credit again. Paying off card debt restores the card limit, and starting to spend on it again doubles the debt.

Consolidation does not itself solve the problem. If spending still exceeds income, the same situation returns. It buys time, and that time has to be used to change the spending structure. After consolidating, reducing the old card limits is the safer move.