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Debt consolidation is simply when a person takes one larger loan to pay off several smaller loans or debts. Some debt consolidation companies might let you take an unsecured loan, but most require some kind of a collateral. You can use your house as collateral which in this case a mortgage will be secured against the house. A secured loan (one that has a collateral) will usually have a lower interest rate than an unsecured loan.

Debt consolidation loans that have low interest rates can save you a lot of money when consolidating credit card debts since credit cards usually have higher interest rates and will take much longer to pay off separately.

In case of bankruptcy sometimes the debt consolidation companies will discount the amount of loan, so it pays to shop around for debt consolidators that will pass some of the savings along to you. When considering to get a debt consolidation loan it is important to keep in mind that consolidations can affect one’s ability to discharge debt in a bankruptcy.

In federal student loan consolidations, the existing loans are purchased by the department of education. Federal student loan consolidation is sometimes referred to as student loan refinancing which is incorrect since the loan interest rates are not changed, but merely locked in. 

If you are considering consolidating your debt it might be a good idea to seek the advice of a financial advisor or a bankruptcy attorney to weigh the advantages and disadvantages of getting a debt consolidation loan.

Be sure to do your own due diligence in order to further educate yourself about this subject. Not meant as legal or professional advice.

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