Function

• The purpose of a debt consolidation is to group all of your unsecured debts (such as credit cards) together, typically through a loan large enough to cover pay off to all of current your creditors. You then have one loan to one creditor.
  
  

Benefit

• The benefit of a debt consolidation loan is one fixed interest rate for all of your debts and one consistent monthly payment amount, rather than several different minimum payments made on a variety of (often high) interest rates.
  
  

Effects

• A debt consolidation may have some positive effects on your credit. If you need a debt consolidation, then you're likely already having problems making your monthly debt payments anyway. If you start making payments consistently on the new loan, this will reflect more positively on your credit report.
  
  

Considerations

• Most debt consolidation companies can help you get a lower overall monthly payment on your debt, but they also typically build in a fee as part of your new monthly payment.
  
  

Warning

• While a debt consolidation loan can give you less out-of-pocket expense on a monthly basis, you may end up paying more money in the long run because of a high interest rate (maybe even 22 percent) on the consolidation loan.