Debt consolidation is the act of taking out new debt and using it to pay off multiple old debts. The goal is to simplify debt repayment by combining multiple debts into a single, larger loan, which may also help reduce the interest rate and lower monthly payments. There are different types of debt consolidation loans, including personal loans, home equity loans, and balance transfer credit cards. Here are some key things to know about consolidation loans:

Pros:

• Simplify repayment by combining multiple debts into one payment.
• Potentially lower interest rates and monthly payments.
• May help improve credit score in the long term by reducing monthly payments.

Cons:

• May end up costing more in fees and rising interest rates than if you had just paid your previous debt payments.
• Low interest rates for debt consolidation loans may be “teaser rates” that only last for a certain time.
• May not be advantageous or available to bad-credit borrowers.
• Beware of debt consolidation promotions that seem too good to be true.

Before considering debt consolidation, its important to understand why you are in debt and make a budget to figure out if you can pay off your existing debt by adjusting the way you spend for a period of time. Its also important to make sure your spending habits are in check, that you’re making your current payments on time, and your credit score is in good shape.