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What Is Debt Consolidation, and Should I Consolidate?

What Is Debt Consolidation, and Should I Consolidate?

With the U.S. economy officially in a recession and historic unemployment numbers, many people are feeling the squeeze. According to a recent NextAdvisor survey, more than half of all Americans have felt anxiety over their personal finances in recent months, with debt being a significant contributor.

While debt is an everyday part of life for many, it can snowball into big problems when you fall behind on payments But there are things you can do before you fall too behind on your debt. Debt consolidation may be a way to lower the interest rate or monthly payments of your current obligations. But this isn't a solution for everyone, and with so many different ways to consolidate debt, you should be thoughtful about what might make sense for you.

What is Debt Consolidation?

Debt consolidation is the process of combining all of your debts into a single payment, often with a loan or balance transfer credit card.

“Typically with debt consolidation, you're also looking to lower your interest rate. So it would be [to] save money and save hassle,” says Ted Rossman, a credit card analyst with Creditcards. When done well, debt consolidation can help you get out of debt faster and save, or rebuild, your credit.

Debt consolidation shouldn't be confused with debt settlement, which all of the experts we talked to said to avoid if possible. “When you settle for less than you owe, it's a bad thing for your credit score,” Rossman says.