You may have heard a lot about debt consolidation, but do you know what it means? The term may sound like financial jargon to you, but the idea behind it isn't really all that complicated. Simply speaking, when you get a fresh loan from either your current lender or a new lender, to cover all your previous debts, it is called debt consolidation. In other words, after debt consolidation you are required to only make a single big debt payment instead of making separate payments for each and every loan you have taken.

More and more people are opting for consolidating their debts due to many advantages of debt consolidation. Too many loans or debts create confusion and make it difficult for you to keep track of them resulting in possible default of your monthly payments. Consolidating your debts save you from a financial mess, including possible bankruptcy.

Of course, loan consolidation doesn't reduce your debt, only consolidates them into a single debt making it easier for you to keep track of your debts and make regular payments. But keep in mind that all financial institutions do not provide debt consolidation services. Nevertheless, you should ask your lender to help you out with debt consolidations. Even if they don't offer the services, they can still refer you to an institution that provides debt consolidation.

You also derive the advantage of lower interest rate, which means slightly lesser monthly payments every month. Too many debts means too many different interest rates which tend to add up. When you go for consolidated debt, you will have a single interest rate which is generally lower than rates of most credit cards. When you have several debts, it becomes difficult to keep track of them which can mean that you may not even know how much you owe to your lenders. Having a consolidated loan ensures that you are well-aware of your financial situation and prevents your from running up astronomical debts due to excess, wasteful expenses.

Many debtors manage their money poorly and end up in bankruptcy courts because they are not even aware of how much debts they have run up. Hence it is important that you should always know how much you are in debt. Being aware of your financial condition helps in better money-management in future and becoming more responsible citizens. Of course, there will be some who will see a single consolidated sum available to them as credit as manna from heaven and find it difficult to resist the temptation of spending it. But such temptation should be resisted, otherwise your will only be compounding your difficulties, as your debts will keep pilling up, making your financial situation even worse.

Debt consolidation only extends the time available to pay your original debts, doesn't eliminate all your previous debts. You will still face schedule of regular monthly payments towards repayments of the consolidated loan and ensure that it is totally paid off.

And of course, you can't ignore interest rates whenever you take any loan. Different lenders have different interest rates. You may feel tempted to choose a lender offering you lowest or very low interest rates, but these offers are generally for a limited time period and after the expiry of the time period, interest rates will be higher and increase your liability in future. So it is better to avoid such lenders. Do your research adequately and choose the institution that best serves your need.