What is a debt consolidation loan?
A debt consolidation loan can be either an unsecured or secured personal loan. They are designed specifically for the purpose of consolidating all your existing debts into one single monthly sum.

How does it work?
The debt consolidation company will buy up all your existing loans, credit agreements, credit card and other debts and bundle them into one. The rate of interest will normally be lower than that payable on your store cards and some of your credit agreements, but at the same time the agreement is to pay them off over a longer period.

What are the benifits?
The main draw of debt consolidation is a, sometimes huge, reduction in monthly repayments. Also, gathering all your debts together in one place may help you to focus on reducing your debt.

Are there any downsides?
Firstly, debt consolidation repayments are made over a longer term. This means that the actually cost of borrowing may be higher. Secondly, debt consolidation works best when treated as such. Many people, however, are tempted to take out further credit elsewhere after consolidating their existing debts. This can lead to debts mounting, sometimes uncontrollably. Therefore you should only take out this kind of loan if you intend to use it wisely and for its intended purpose.