Debt consolidation is essentially combining all your outstanding loans into one loan which pays off the others, so you only have one monthly payment. In theory it sounds like a sensible approach to your debt problems but you must do your homework before you commit into a debt consolidation loan. If the adverts are anything to judge by, these kinds of loans are the answer to all your problems. But are they?

Advantages;

• You only make one payment a month which makes it a lot easier to manage your finances and you know exactly how much and to whom you should pay every month.

• The common problem with people who have multiple loans is not being able to manage your monthly budget.

• As most debt consolidation loans are secured against collateral, usually your home and over a long term, the monthly payment will be less than the combined payments for all your other outstanding loans. Also, as these are secured loans, the interest rates will be lower. As you only have one lender to repay, it is easier to deal with if any problems arise. This makes managing your finances a lot easier.

• Any interest paid to a mortgage loan can be written off against tax used as a tax write off.

  Disadvantages;

• Most people who are considering debt consolidation already have trouble managing their finances. If you end up with one payment a month and all your outstanding credit card balances paid off, it may be tempting to start using these cards again and then get further into debt.

• As these loans are essentially second mortgages over a long term, it will take you longer to be debt free.

• Even as the interest rate is less, because the term of the loan is over such a long period, you may end up spending more in repayments.

• Perhaps the most important point you must consider before taking out a debt consolidation loan, remember that the loan is secured on your home and if you do not keep up with repayments, you could lose your home.

So although debt consolidation may sound like a great idea, it may not be for everyone. So the advice is to carry out thorough research before making a decision and ensure the interest rate you get for your debt consolidation is the best for you.