Full definition
Debt consolidation combines existing obligations (cash loan, credit card, payday loan, overdraft) into a single new loan — typically with a longer term and a lower monthly instalment. Benefits: lower monthly burden (critical for restoring creditworthiness), a single instalment (simpler tracking), often lower effective cost (especially when consolidating payday loans at RRSO 300–900% into bank credit at RRSO 11–14%). Costs: longer term usually raises total cost, a 1–5% consolidation fee, potential need for collateral above certain amounts (then it becomes a "mortgage-secured loan", not consolidation). Consolidation is appropriate when high instalments strain daily life — not when insolvency is imminent (where bankruptcy or creditor settlement are correct tools). After consolidation, not taking on new debt is essential — otherwise you re-enter the refinancing loop.
Concrete numeric example
3 loans + credit card: total instalment 2,400 PLN/month, 45,000 PLN outstanding over 2 more years. Consolidation: 50,000 PLN (including fee) over 6 years at RRSO 12% → new instalment 980 PLN/month. Monthly relief 1,420 PLN, but total consolidation cost is ~15,000 PLN higher (longer term).
Related terms
Consumer bankruptcy
Court procedure allowing an insolvent individual to obtain full or partial debt discharge. Accessible when insolvency did not occur through the debtor's fault.
Creditworthiness
The bank's assessment of how much you can safely borrow without default risk — based on income, expenses and existing obligations.