Debt consolidation

Definition

Combining several debts, often credit cards and loans, into one financing arrangement, usually by refinancing the mortgage. The mortgage rate is lower than a card’s, but the debt gets spread over many years: the payment drops, and total interest can rise. Example: $25,000 on cards at 20% costs $5,000 in interest a year. At 5%, the same amount costs $1,250 a year, but spread over 25 years, total interest can exceed what repaying the cards over a few years would have cost. Compare the payment, the fees, any penalty, and the total cost, not just the rate.