What is the term for the process of combining multiple debts into a single loan or payment?

The process of combining multiple debts into a single loan or payment is known as debt consolidation. This financial strategy is used by individuals who may have numerous debts with varying interest rates and payment schedules. By consolidating these debts, the borrower can simplify their financial obligations, often resulting in lower monthly payments and potentially reduced interest rates.

Debt consolidation can take many forms, including obtaining a personal loan to pay off various credit balances, or using a balance transfer credit card that offers a low or zero introductory interest rate. The main goal is to streamline the repayment process and make managing finances more manageable.

Refinancing involves replacing an existing loan with a new one, typically to take advantage of lower interest rates or modify loan terms. Loan modification refers to altering the terms of a current loan to make payments more manageable, often in response to financial hardship. Credit repair involves efforts to correct or improve one’s credit history, which is distinct from the process of consolidating debts. Understanding these distinctions is crucial for selecting the right financial strategy.