Debt consolidation is a strategy that involves taking a new loan to repay multiple pre-existing debts. People usually choose to consolidate their debts if they are able to get a lower-interest loan, with which they can repay the high-interest debts that they already have. Here are certain types of loans that you can consolidate using this method.

Credit Card Debt

If you don’t repay your bills in full every month, you’ll end up carrying a balance on your card from month to month. If you have multiple such unpaid balances, it’s likely that you are paying a high-interest rate on the debts. In such cases, it makes sense to get a lower interest personal loan or home equity loan to repay your credit card debts. You may also be able to qualify for a 0% APR balance transfer credit card, with which you can consolidate your credit card debts.

Personal Loans

While personal loans are usually more affordable than credit cards, there’s a chance you may be paying a high-interest rate on your personal loan, especially if your credit wasn’t great at the time of taking the loan. If your credit has improved over time, you may be able to secure a new loan with a lower interest rate to repay your existing loan. Keep in mind that personal loans usually have a prepayment fee, so ensure that the cost of prepaying the loan can be offset by how much you will stand to save by taking the new loan.

Student Loans

Although student loans usually have a competitive interest rate, you may have multiple loan accounts associated with your credit report, especially if you received a new loan for each semester. If you are able to get a loan with a lower rate of interest than what you currently pay, it may be worth consolidating your loan accounts since it will make repayments easier.

While debt consolidation can help you simplify your debt, you need to understand that it doesn’t completely erase the debt. All debt consolidation does is restructure your debt to make it more manageable. So, once you consolidate your debts, ensure that you make it a priority to repay your new loan.