Debt Consolidation

• A person wishing to consolidate his credit card debts should apply for a loan from a debt consolidation company. If the company agrees to issue the debtor a loan, it will pay off her credit card bills and then issue her a new loan for an amount equal to the total sum of her credit card debts.
  
  

Advantages

• Debt consolidation loans can often help borrowers avoid defaulting on credit card debts by reducing the size of their monthly payment. With debt consolidation loans, the size of a borrower's monthly payments will often be lower than the combined size of his current loans. In addition, consolidating credit card debts can greatly simplify his monthly payments. Instead of making multiple payments, the debtor will be making a single payment.
  
  

Drawbacks

• The main drawback of a debt consolidation loan is that the debtor will, in nearly all cases, increase his total debt. Debt consolidation companies are run for a profit. This means that the lenders will charge an interest rate on the person's current loans or it will add principal to his loan, so as to make a profit off the new loan. This may place the debtor deeper into debt.
  
  

Considerations

• Not everyone is eligible for debt consolidation. Just as with any other loan, a person seeking to consolidate her credit card debt must find a lender willing to issue her a loan. If a lender believes that a debtor has little chance of paying back the loan, it may refuse to make a loan. However, many debt consolidation companies specialize in issuing debts to clients with low credit ratings.