Debt consolidation is the process of combining several debts from credit cards, higher interest loans, and other bills into one monthly payment. Typically, you can get a loan to pay off all of the high interest loans and then just pay down the lower interest rate loan monthly, ideally saving you hundreds if not more in interest payments that you’d otherwise be making.
Credit card debt $5,000 @ 19% APR
Credit card debt $2,000 @ 17% APR
Auto loan $5,000 @ 12% APR
Total debt = $12,000
If you were to go out and qualify and get a personal loan for $12,000 at a lower interest rate (something like 5-8%), you could pay off the balances of all of the debts and make just one monthly payment towards the loan. Ideally you’ll be paying this lower interest rate off faster and for less money than paying all of the debts separately.