What does it mean to consolidate debt?

Consolidating debt refers to the process of combining multiple debts into a single loan. This is often done to simplify the repayment process, as it allows an individual to make a single payment each month instead of managing several different payments to various creditors.

When debts are consolidated, typically through a personal loan or a specific debt consolidation loan, this can potentially lead to a lower overall interest rate compared to what one might be paying across all individual debts. Moreover, debt consolidation can help improve financial organization and may reduce the total monthly payment amount, making it easier for borrowers to manage their finances effectively.

In contrast, other options such as paying off debts using savings or negotiating lower interest rates are different strategies that do not fundamentally change the structure of the existing debts into one single payment. Distributing debt across different accounts implies spreading out payments, which can complicate rather than simplify the management of debt. Thus, the essence of debt consolidation lies specifically in merging several debts into one comprehensive loan.