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Debt consolidation is when you take out a new loan to pay off multiple debts, ideally at a lower interest rate. Debt settlement is when you hire a company to negotiate your debt and pay less than you owe. Overall, debt consolidation is a safer option for your credit score.

A debt consolidation can help you lower your monthly payment and help improve your credit, but only if you stick to a plan to pay down your debt.

Auto loan consolidation effectively combines two or more auto loans into one different type of loan ? but that new type of loan might not be the best fit. Maybe you don't have home equity to tap or don't want to. Unsecured loans are another option, but their APRs may be high, making them a more expensive choice.

Mortgage consolidation gives you the option of merging multiple loans into one. It's a good way for some people to save money or get a little more breathing room in their monthly payments. Learn more about the mortgage consolidation process and see if it's right for you.

When consolidating debt, your overall monthly payment is likely to decrease because future payments are spread out over a new and, perhaps extended, loan term. While this can be advantageous from a monthly budgeting standpoint, it means that you could pay more over the life of the loan, even with a lower interest rate.

Debt consolidation means that your various debts?whether credit card bills or other loan payments?are rolled into one loan or monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments.

There are also some downsides to debt consolidation that you should consider before taking out a loan. It won't solve financial problems on its own.There may be up-front costs.You may pay a higher rate.Missing payments will set you back even further.

The addition of a new account: If you're opening a new account to consolidate your debt, such as a balance transfer credit card or a personal loan, the new account will lower the average age of all of your accounts, which can negatively impact the length of your credit history.

When loans are consolidated, any unpaid interest capitalizes. This means your unpaid interest is added to your principal balance. The combined amount will be your new loan's principal balance. You'll then pay interest on the new, higher principal balance.

Cons: Consolidating could erase payments toward loan forgiveness. Your loan can be forgiven after making payments for 20 to 25 years under an income-driven repayment plan.Consolidating to a longer loan term can be costly.Consolidating could increase your interest rate.Unpaid interest gets added to your balance.