A consolidation loan is a type of personal loan that allows you to combine multiple debts into a single loan.

Instead of managing various debts with different interest rates and payment schedules, a consolidation loan simplifies the process by providing one loan with a fixed interest rate and a single monthly payment.

When you obtain a consolidation loan, you use the funds to pay off your existing debts, such as credit card balances, medical bills, student loans, or other personal loans. By doing so, you effectively consolidate all those debts into a single loan.

The consolidation loan typically comes with a competitive interest rate, which is often lower than the rates on credit cards or other high-interest debts. This can save you money on interest payments over time and potentially help you pay off the debt more quickly.

Consolidation loans can be secured or unsecured. A secured consolidation loan requires collateral, such as a home or a vehicle, which serves as security for the loan. Unsecured consolidation loans, on the other hand, do not require collateral but may have higher interest rates to compensate for the increased risk to the lender.

It’s important to note that consolidation loans do not eliminate your debt; they simply reorganize it. You still need to repay the consolidation loan as agreed, but the aim is to simplify your debt management and potentially reduce your overall interest costs.