Debt consolidation is a term that is easily misunderstood and often misused. True debt consolidation involves taking out a loan greater than or equal to the combined (consolidated) amounts of your current debts and using that money to pay off those other debts. It can be attractive in that you will then have to make just one monthly loan payment, although debt consolidation loans are typically only available to individuals who have collateral, such as a home or car, to borrow against.