Debt consolidation is the process whereby the consumer moves their various existing debts, such as outstanding balances on credit cards or loans into one lump payment through the use of another, larger loan. This may be an attractive option for people who are struggling to make payments on several high-interest credit cards or loans every month.  The debtor should, however, be aware that taking out a loan over a longer period of time may result in paying more interest.

Debt consolidation can be completed using either an unsecured loan or a secured loan.  To get a secured loan, the debtor must use something as collateral: for example their home or some other major asset.  By getting a secured loan the debtor can usually get a lower interest rate on their payments and borrow a higher amount.  An unsecured loan does not require the debtor to put up collateral; the result of this is a significantly higher interest rate on their monthly payment. Where possible an unsecured loan is therefore usually the best option for those in need of debt consolidation.  An unsecured loan may be the best option for those without a large asset with which to secure a better interest rate, and it may be their only avenue to credit card debt consolidation.

The debtor should always carefully research the debt consolidation company to whom they turn for help. Once they have found a company with which to work, the debtor will develop a plan with their credit counselor to pay off their debt. This will inevitably entail making drastic lifestyle changes to curb reckless spending, but it will result in overall more well-being as the debtor regains control of their life.