Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.

It may seem at first blush that there is no downside to debt consolidation - you end up with a lower monthly payment and have more cash on hand at the end of each month, while your debts are still being paid off. However, depending upon how the consolidation loan is structured, you may end up paying a lot more interest on your consolidated loan, and taking a great deal more time to pay off your debt, than if you keep paying your present individual debts.
Additionally, there is a chance that obtaining a debt consolidation loan will hurt your credit. Depending upon the scoring used, obtaining a new line of credit and paying off existing loans can result in your being classified as a greater credit risk.For people who are able, the best way to resolve outstanding debt is often to pay more each month to service their debt - focusing on paying down the principal of the highest interest debts with non-deductible interest .
Finally, you must ask yourself if you will demonstrate the fiscal discipline necessary to benefit from debt reconsolidation. If you obtain a consolidation loan with a lower monthly payment, but immediately run up new credit card debts, you will almost certainly end up in a worse position than you were in prior to consolidating your debts.
This method consists of taking one big loan to pay off smaller loans. This loan consolidation would only be useful if the interest you will pay by consolidating your debt is lower then the individual debt interest rates. Also while opting for debt consolidation you need to be careful of the mortgage terms.

A debt consolidation service provides a loan which pays off some or all of your existing debt, and replaces it with a single loan with a single payment. The promise is to replace various high interest loans, such as credit card debt, with a single loan with a lower total monthly payment.A related type of service is a debt management service, which does not provide a consolidation loan, but instead pays your various debts for you.