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Put in a simple way, bad debt consolidation is just one big loan taken out to pay off smaller loans take out else where. These types of loans can be beneficial for debtors but they do also have their pitfalls. There are a few situations when this is a good idea, if you are paying several different loans it can make your life a little easier if you consolidate them all into one loan, thereby you will obtain but one statement every month making it easier to keep track of things, with only payment to make each month.

You may also find yourself in a situation where your monthly payments will decrease because it will stretch out the payments each month with a smaller amount, which will give up some of your disposable income at the end of the month.

In theory debt consolidation works well when someone is paying off credit card debt, because credit card debts come at much higher interest rate.

This is possible for the obvious reason that the risk for the bank is lower because of the redundancy of security. If all else fails then the house gets foreclosed and the debt is paid off. This route is usually only done in extreme debt cases. This is called a secured loan.

Like this the total interest rate falls there fore the total amount that needs to be repaid also lessens and it can be repaid quicker. Ultimately when you pay less interest each month then you will have some extra cash that will be freed up for any other type of spending.

Consolidation is done to ease the load for the time being, because what you are doing is stretching the burden over a longer period of time so that you can have some extra money for now.