Combining several debts into one account is known as debt consolidation. This means all of the money you owe will be charged the same interest rate and you will only have to make one payment per month.
You can consolidate debts onto a single credit card, a personal loan or a specific “debt consolidation loan”, as well as some mortgages. This approach can help some people manage debt, but there is a risk of seeing it as a “quick fix” – particularly if a low introductory rate is part of the deal.
Case Study: Neha plans for debt consolidation
Neha has three different debts that she wants to pay off in the next 12 months:
Neha currently makes minimum payments on both her cards and a fixed payment of $340 on her car loan, totalling $420 per month. At this rate, it would take her over seven years to pay off her credit cards and 12 months to clear the car loan. It would also cost her more than $2000 in interest charges.