What exactly is debt consolidation?

What exactly is debt consolidation?

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By Bromwich+Smith Staff | 650 words | Reading Time: 3 minutes and 15 sec | Date: 2022/02/15

When you have multiple debt payments one way to streamline them is to consolidate them. Debt consolidation is the process of merging multiple debts into a single debt. So instead of making separate payments to multiple credit card issuers or lenders each month, you can roll them into one payment for a single payment, ideally at a lower interest rate. 

Debt consolidation can be used to merge several types of debt, including:

  • Credit cards
  • Personal loans
  • Student loans
  • Vehicle loans

While debt consolidation won’t clear out all of your debt challenges, it can help make it easier and less expensive to pay off.  With a lower interest rate you can save quite a bit overall and having one payment will enable you to stay on top of your bills avoiding late payments. 

Debt Consolidation Types

No matter what type of debt you’re consolidating, there are several options to choose from.

Debt Consolidation Loans

These personal loans consolidate multiple loans into one fixed monthly payment. Debt consolidation loans generally have terms between one and 10 years, and many will let you consolidate up to $50,000.

Balance transfer credit card

If you have multiple credit card debts, a balance transfer credit card can help you pay down your debt and minimize your interest rate. Like a debt consolidation loan, a balance transfer credit card transfers multiple streams of high-interest credit card debt onto one credit card with a lower interest rate. Keep in mind that balance transfer credit cards tend to have higher interest rates than other forms of debt consolidation.

Student loan refinancing

Refinancing your student loans can help you obtain a lower interest rate especially if you have high-interest student loan debt. While refinancing can be a great way to consolidate your student loans, you’ll still have to meet eligibility requirements. 

Home equity loan

A home equity loan allows you to tap into your home’s existing equity. Most home equity loans come with repayment periods between five and 30 years, and you can typically borrow up to 85 percent of your home’s value, minus any outstanding mortgage balances. Plus home equity loans tend to have lower interest rates than credit cards and personal loans because they are secured by your home. 

Home equity line of credit

A home equity line of credit (HELOC) is a home equity loan that acts as a revolving line of credit. Like a credit card, a HELOC allows you to withdraw funds as needed with a variable interest rate. A HELOC is also based against your home’s existing equity, so the amount that you can borrow is dependent on the equity you have in your home.

Debt Consolidation Process

The process is similar no matter which form of debt consolidation you are using. With debt consolidation, you will use the funds from your debt consolidation loan to pay off all of your existing debts in full. Which leaves you with only one monthly loan payment, generally with a lower interest rate than all of the interest rates on your previous loans.

The pros and cons of Debt Consolidation

Before consolidating your debt, let’s consider the pros and cons.


  • Pay less total interest. 
  • Simplify the debt repayment process. 
  • Improve your credit score. 


  • Pay upfront costs. 
  • You can put your collateral at risk.
  • You could raise the total cost of your debt: so ensure you have an exit strategy and an end date for your consolidation.

If you’re interested in debt consolidation, take the time to examine all of your options and talk to a professional. Debt consolidation does not pay off your debt; it simply moves it to combine all your debt. So, if you want to pay off your debt completely, debt consolidation would not be the best option. 

Whatever you decide, remember, we’re here to help. At Bromwich+Smith, we offer an initial free, no obligation, confidential consultation by phone 1-855-884-9243 or video. You can also request a call back at our contact us page. Feeling safe and secure financially not only rebuilds your worth but it ensures that you sustain your personal prosperity and self-confidence.


Related blog:

The pros and cons of Debt Consolidation
Debt Forgiveness vs Consolidation Loans 



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