What Is a Debt Consolidation Loan?

A debt consolidation loan is financing with a singular purpose: consolidating debts. When you get a debt consolidation loan, you typically borrow a lump sum of money. Your lender transfers a lump sum to you when you close your loan, and you use it to pay off other loans or debts. Ideally, you replace multiple payments with a single, lower payment each month.

There are two types of debt consolidation loans: unsecured and secured. An unsecured loan is not backed by collateral, while a secured loan is backed by collateral (usually your home). The type of loan you qualify for depends on your credit score and other factors.

Debt consolidation loans can help you get out of debt faster. When you consolidate your debts, you may be able to secure a lower interest rate and save money on monthly payments. Debt consolidation loans can also help improve your credit score over time if you make timely payments.

If you’re struggling to manage multiple debts, a debt consolidation loan may be right for you. But it’s important to understand how debt consolidation loans work before you apply. This guide will explain everything you need to know about debt consolidation loans, including how to qualify and where to get one.