Debt consolidation is the act of taking out a loan in order to pay off several other loans. Assume that you have credit card debt carrying interest rates as high as 20%, and you have a home mortgage, with some equity in your house, with an interest rate of 5% for 30 years. In a consolidation, you take out a home equity loan, which charges a smaller interest rate, for the value of your high interest credit card debt, and then make payments on your equity loan until the debt is paid off.