Definition: The process of taking out a single large loan to pay off all or some of your existing debts.
The benefit of debt consolidation is that you may be able to take out a loan at an interest rate lower than what you are currently paying on your debts. It may also be possible to spread your payments out over a longer period, lowering your monthly payment. However, if the loan period is extended, you may end up paying more over the life of the loan.
If you have fallen into arrears or are heading through foreclosure proceedings, it may be difficult to obtain a debt consolidation loan. If you have not yet fallen behind on your payments and can find a loan more agreeable than your current combination of credit card and bank loan debt, you may wish to consider debt consolidation.
See Also: Amortization, Arrears, Bankruptcy
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