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What is Debt Consolidation? Examples, Calculator & Companies

Debt Consolidation

Debt consolidation is the process of combining multiple debts into a single, larger debt. This is typically done to simplify payments and potentially reduce interest rates and monthly payments.

For example, someone with multiple credit card debts may choose to consolidate their debts by taking out a personal loan at a lower interest rate and using the loan proceeds to pay off the credit card balances.

This can make it easier to manage their debt because they now have only one monthly payment to make instead of several, and the interest rate on the loan may be lower than the rates on the credit cards, which could potentially save them money over the long term.

Debt consolidation can also be achieved through balance transfer credit cards, home equity loans or lines of credit, and other methods.

However, it’s important to remember that debt consolidation is not a solution to debt problems on its own and should be used in conjunction with a broader debt management plan that includes strategies for reducing debt and improving financial habits.

Debt Consolidation Example; How To Consolidate Credit Card Debt

Let’s say you have three credit cards with balances of $5,000, $3,000, and $2,000, and they all have high-interest rates of 20%, 18%, and 15%, respectively. You’re struggling to keep up with the payments and you’re worried about the amount of interest you’re accruing each month.

To consolidate your debts, you could take out a personal loan for $10,000 with a lower interest rate of 10%. You would use the loan to pay off the balances on your credit cards, and then you would only have to make one monthly payment on the loan.

Debt consolidation calculator

Here’s how the numbers would work out:

Credit Card 1: $5,000 at 20% = $1,000 per year in interest Credit Card 2: $3,000 at 18% = $540 per year in interest Credit Card 3: $2,000 at 15% = $300 per year in interest

Total interest per year = $1,840

Personal Loan: $10,000 at 10% = $1,000 per year in interest

By consolidating your debt with a personal loan, you would save $840 per year in interest payments. Plus, you would only have to make one monthly payment instead of three, which could make it easier to keep track of your debt and stay on top of your payments.

It’s important to note that debt consolidation isn’t the right choice for everyone, and there are other factors to consider, such as fees and the length of the loan.

It’s always a good idea to consult with a financial advisor or credit counselor to determine the best course of action for your individual situation.

Debt Consolidation Pros And Cons

Debt consolidation is the process of combining multiple debts into a single loan or payment plan. This can help simplify debt repayment and potentially lower the overall interest rate. However, like any financial strategy, there are both pros and cons to debt consolidation.


  1. Simplified payment: With debt consolidation, you can consolidate multiple payments into one payment. This can make it easier to manage and keep track of your debts.
  2. Lower interest rates: If you have high-interest debts, consolidating them into a lower-interest-rate loan can help you save money on interest payments over time.
  3. Potential to lower monthly payments: Debt consolidation can sometimes result in a lower monthly payment, which can provide financial relief.


  1. Possible fees: Debt consolidation may come with fees such as origination fees, balance transfer fees, or early repayment fees. These fees can add to the total cost of the consolidation loan.
  2. Long-term costs: While debt consolidation may lower your monthly payment, it can also extend the length of time you’re paying on your debts. This can increase the overall cost of the debt over time.
  3. Potential to accrue more debt: If you don’t address the underlying issue of overspending, debt consolidation may only provide temporary relief. If you continue to overspend and accumulate more debt, you may find yourself in a worse financial position.

Overall, debt consolidation can be a useful tool for managing debt, but it’s important to consider the potential costs and drawbacks before making a decision.

It’s also important to remember that arrears consolidation is not a cure-all and may not be the best solution for everyone’s financial situation.

Reputable Debt Consolidation Companies In Los Angeles

Here are some steps you can take to find reputable arrears consolidation companies in Los Angeles:

  1. Check with your local Better Business Bureau (BBB) to see if any arrears consolidation companies in Los Angeles have a good rating and are accredited.
  2. Ask for referrals from people you know who have used debt consolidation companies in the past.
  3. Search online for arrears consolidation companies in Los Angeles and read reviews from past clients. This can help you get an idea of the company’s reputation and whether they are trustworthy.
  4. Consider contacting a non-profit credit counseling agency, such as the National Foundation for Credit Counseling (NFCC), which may be able to provide you with free or low-cost debt counseling and consolidation services.
  5. Before choosing a debt consolidation company, make sure to carefully review their terms and fees, ask questions, and read any agreements or contracts thoroughly.

Remember, it’s important to choose a reputable arrears consolidation company that has your best interests in mind and can help you achieve your financial goals.

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Amos is an experienced SEO expert. He has an interest in finance, IT, business ideas, and investments. He has also contributed to many global web portals.