Debt consolidation loans, as the name implies, is a loan which helps to consolidate all other loans.  Suppose you have taken many loans, at various interest rates, at various times of your life.  You have to keep track of all the payments made for these loans, so that you pay in time and do not attract penalty.  Instead of this exercise, you can take a big loan and then pay off all your previous loans.  So now, you have only one loan to repay and only one monthly interest payment to make.  Thus, you consolidate all your previous loans with this one new big loan, which is effectively called as a debt consolidation loan.  If you take the debt consolidation loan when the interest market is down, then you could also save money by paying lower interest rates.  Debt consolidation loans are usually secured against your assets or they may even be unsecured.

Benefits of debt consolidation loans

• It provides ease of operation.  Now you do not have to make various payments at various interest rates to various moneylenders.  Thus, it is very convenient.
  
• Helps better planning.  Now you can concentrate only on the single payment that you have to make and plan accordingly.
  
• It may be cheaper than your other loans.  A low rate of interest may be charged when the interest market is down, thus you may find the debt consolidation loan cheaper.
  
• Debt consolidation loans are also offered on the Internet.  With online offers, comparison of online moneylenders’ loan quotes and their quoted APRs (annual percentage rates) becomes easy and smooth.
  
• Persons with low credit ratings can also get these loans.  A low credit score does not prohibit you from the availability of these loans; however, a higher interest rate and other charges may be applied.
  

Dangers of debt consolidation loans

• Debt consolidation is not removal of debts.  All your previous debts are simply consolidated in one big debt.  Hence, you may have to pay the same amount as you were paying previously.  The difference is that you are paying a single moneylender at a fixed time, instead of paying numerous moneylenders at different times.  Therefore, your debt remains as it was.
  
• Your assets may be held as collateral in a secured debt consolidation loan.  This means that if you miss the installment to pay, then you have to pay penalty and your interest rate may be hiked up.  If you fail to make any payments, then your secured assets may be seized and sold by the moneylender to regain the money loaned to you.
  
• It promotes your habit of getting into debt.  The reason why you went into debt is not looked into, and so it offers only symptomatic relief, and not a cure.  If your habits are not changed, then you will not be able to take advantage of the debt consolidation loan.  You must get into the habit of increasing savings to clear off your debt.
  
• Many moneylenders offer debt consolidation loans.  Some are genuine, some are tricksters, and some are outright frauds.  Hence, you must be careful before entering into an agreement with a moneylender whose credentials you do not know.
  

·         Verify the credentials.  You may verify the third-party registrations or the certifications with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to check the membership of the moneylender.  You may also ask for references and check them out.  It is advisable not to proceed further with any moneylender who does not give a straight answer and who is incapable of answering all your questions.