Personal debt consolidation is a strategy that is employed by individuals to bring all personal debt under one common umbrella and make a single monthly payment on that combined debt. This is in contrast to a debt reduction plan, which would focus primarily on arranging the monthly budget to expedite the payment of each of the outstanding debts. Consolidating debts is sometimes accomplished with the aid of family members or personal benefactors. More often, personal debt consolidation is achieved by working with one of the many debt consolidation companies available to consumers.

It is possible to handle personal debt consolidation privately. This may involve obtaining a loan from relatives or others who are in a position to pay off all current debts and allow the debtor to repay the borrowed amount in installments. This arrangement may or may not include paying interest on the total amount of the loan.

When a private loan is not possible, people often turn to loan agencies and finance companies that offer structured debt consolidation. Many of these companies require documentation that verifies the amount of debt owed. This data may be used by the finance company to issue payments directly to the creditors. From that point forward, the debtor commits to making a monthly payment to the finance company that repays both the principal and any interest charged by the lender.

Just about every personal debt consolidation plan has two main goals. First, there is the desire to get out of debt as efficiently and quickly as possible. Choosing to enter into a debt consolidation plan can often immediately reduce the amount of original interest owed on the total outstanding debt. This reduction in interest due makes it possible to eliminate debt quicker than trying to make payments on multiple debts carrying different and usually higher interest rates.

The second goal for a personal debt consolidation plan is to alleviate stress on the household budget. Often, the total of the monthly installment payment on various consolidation plans will come to less than the sum total of the combination of minimum payments and late fees that are due some or all of current creditors. Making one central payment each month is much simpler than remembering to mail multiple payments to different creditors each week. With fewer transactions to make, it is often easier to regain control of the budget and prevent finances from becoming worse.