What does amortization refer to?

Amortization specifically refers to the process of reducing or eliminating a debt through a series of regular, scheduled payments over time. In the context of a loan, each payment typically includes both principal and interest, systematically decreasing the outstanding loan balance until it is fully paid off by the end of the loan term. This structured approach allows borrowers to plan their finances better, knowing how much they need to pay periodically.

The other options do not accurately reflect the definition of amortization. Increasing a debt with irregular payments indicates a different concept related to debt management that does not involve systematic payment reduction. Consolidating different loans into one refers to combining various loans for convenience or lower interest rates, rather than methodically paying down a specific debt. Additionally, refinancing relates to the process of obtaining a new loan to replace an existing one, often to secure better terms, rather than the act of regular payments that define amortization.