debt
Debt Consolidation
Debt consolidation combines multiple debts into a single loan, ideally at a lower interest rate. The goal is to simplify repayment and reduce total interest paid.
Common methods: a personal loan to pay off credit cards (if the personal loan rate is lower), a balance transfer to a 0% APR promotional card, or a home equity loan/HELOC. Each has different costs, risks, and eligibility requirements.
The risk: consolidating without changing spending behaviour often leads to running up the cleared credit card balances again, leaving you with both the consolidation loan and new credit card debt. Consolidation is a tool, not a cure.
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Open calculator →Related terms
- Debt Snowball Method
- The debt snowball method pays off debts from smallest to largest balance, regardless of interest rate. Each paid-off debt frees up cash to accelerate the next — creating a growing 'snowball' of payments.
- Debt Avalanche Method
- The debt avalanche method pays off debts in order of highest interest rate first. It minimises total interest paid and is the mathematically optimal debt payoff strategy.
- Debt-to-Income Ratio (DTI)
- The debt-to-income (DTI) ratio is your monthly debt payments divided by your gross monthly income, expressed as a percentage. Most lenders require a DTI below 43% to qualify for a mortgage.
Frequently asked questions
What is Debt Consolidation?
Debt consolidation combines multiple debts into a single loan, ideally at a lower interest rate. The goal is to simplify repayment and reduce total interest paid.