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What Is Debt Consolidation and When Is It a Good Idea?
Debt consolidation refers to taking out a new loan or credit card to pay off other existing loans or credit cards. By combining multiple debts into a single, larger loan, you may also be able to obtain more favorable payoff terms, such as a lower interest rate, lower monthly payments, or both.
Here's how to decide whether you should consolidate your debts and how to go about it if you do.
Key Takeaways
- Debt consolidation is the act of taking out a single loan or credit card to pay off multiple debts.
- The benefits of debt consolidation include a potentially lower interest rate and lower monthly payments.
- You can consolidate your debts using a personal loan, home equity loan, or balance-transfer credit card.
How Debt Consolidation Works
You can roll old debt into new debt in several different ways, such as by taking out a new personal loan, a new credit card with a high enough credit limit, or a home equity loan.
Then, you pay off your smaller loans with the new one. If you are using a new credit card to co
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- when should you consolidate credit card debt