Debt consolidation can be very risky and requires you to do a good deal of homework.  It is best to find a neutral third party to help you - a friend or relative who works in finance, or even a consultatant that you pay, because without the right research the too-good-to-be-true debt consolidation loan could lead you to problems.  This site provides some background into debt consolidation programs, but is far from enough to provide you advice about your very specific debt reduction needs.

Debt consolidation usually involves entails taking out a new loan that will be used to pay off debts.  The goal may be to find a lower interest rate, a longer term, or lower payments.  Sometimes it could also be to find a fixed rate to take the place of variable rates, especially when there is a fear of rates rising.  At other times it might be to merge many small loans into one larger one - this may be especially true in the case of student loans. 

The debt consolidation or reduction programs that are most likely to benefit you are those that take a whole bunch of unsecured (meaning no collateral) loans and using an asset to find a secured loans.  Secured loans usually have longer terms and lower interest rates.  An example of this type of debt consolidation is moving personal loans into a mortgage refinance.  There can be drawbacks to this type of debt reduction however, and lengthening the term, or putting your house at risk, can actually be problems that outweigh the benefits.

The other type of debt consolidation that may work in your favor is when a lender or credit card company is worried that you will completely defaul t of your loan and is therefore willing to reduce what you owe so they can at least collect something back from you.  The programs that offer this kind of debt consolidation can be tricky, and you really have to thoroughly research the company you are looking in to.

There are allso some completely neutral ways to consolidate.  As mentioned above, often school (student) loan consolidation programs merely consolidate 4 loans into one, making payment easier.  Usually there is no change in the amount paid back or the total interest with student loan consolidation.   

The most important peice of advice we can give about debt reduction or consolidation is that no matter what form you choose, and what company you go with, make sure you understand what led to the debt problem in the first place.  If you have made poor or ill-informed choices, or have otherwise made decisions you wish you could take back, learn from these so they do not happen again. 

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