Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.

In the UK Student Loan entitlements are guaranteed, and are recovered using a means-tested system from the students future income. Student Loans in the UK can not be included in Bankruptcy, but do not affect a persons credit rating because the repayments are recovered from the students future salary at source by the employer before any income is paid, similar to Income Tax and National Insurance contributions. Many students however, are struggling with debt well after their courses have finished

The level of personal debt in the UK has also risen astonishingly in recent years:

"Total UK personal debt at the end of February 2008 stood at £1,421bn. The growth rate increased to 8.9% for the previous 12 months which equates to an increase of £111bn We’ll help you to take the next step in solving your debt problems and taking control of your finances. Free debt advice - Support in liberating yourself from the burden of bad debt.

We offer support with debt settlement, a bespoke debt management plan, a debt consolidation loan or an IVA (Individual Voluntary Arrangement). As we work in close partnership with you, we make sure that you only pay your creditors a reasonable amount that you can realistically afford. * Are you faced with mounting debt from credit or store cards, overdrafts or unsecured loans? * Have you failed to secure credit for a debt consolidation loan? * Feeling harassed by your creditors or other debt collectors? * Do you struggle to think of a future free from debt stress? * Do you struggle to think of a future free from debt stress? * Are your mounting debts beginning to affect your health? * Do you feel the threat of bankruptcy? The pressure of mounting debt problems can be intimidating, leaving you feeling isolated and alone. However, there’s no need to face this stress on your own. If you want the support of a dedicated team of professional debt advisors, trained to find the best debt solution to suit your circumstances, ThinkFinances are here to help. Why look to ThinkFinances for a debt solution?

First of all, our debt advice is free and tailored to suit you. Everyone’s financial situation is different and needs to be approached in a way that’s specific to you as an individual. We are dedicated to helping people manage their debt and provide them the information on the debt solutions available. So, we’ll help you decide whether you should opt for a debt management plan or an IVA, a debt consolidation loan or bankruptcy.

The ThinkFinances team are here to help you with useful background information, take you through the various options that might suit your circumstances and give you an understanding of the procedures involved in debt solutions like the IVA. We’ll be glad to go through these debt solutions with you but you can also check the Frequently Asked Questions on each to give yourself an introduction to the options open to you

If your debt has spiralled out of all control, there are a number of steps you can take to help get your finances back on the straight and narrow. One of these steps is debt consolidation. In a nutshell, debt consolidation is where you take out a large loan to enable you to pay off all of your debts in one go, leaving you with one monthly payment, rather than several bills coming in at different times of the month.

There are two types of loan - secured, and unsecured. A secured loan is where you borrow money against one of your assets, usually your home. Therefore, if you failed to make repayments on the loan, you would have to surrender ownership of your home to the lender instead. An unsecured loan is where you borrow money without any assets as collateral. If you have an excellent credit history, then you may be able to get an unsecured debt consolidation loan. However, it unlikely that you will even be considering debt consolidation if you have a good credit record. This is why most debt consolidation loans tend to be of the secured variety.

Most debt consolidation plans are sold as a quick fix for your financial problems. However, this is only true in certain cases. In order to find out whether a debt consolidation loan really will solve your debt problems, it is important to spend a little time working out how much money you owe in total, and what the interest repayments would come to over a reasonable length of time. Then, you should work out how much the debt would cost to repay over that same length of time if it were consolidated. If this figure is substantially lower than the previous figure, then debt consolidation is a step that you should seriously consider.

You should also consider whether you would really be able to pay the stated amount every month. If not, then you might want to look into other debt relief options, such as Individual Voluntary Agreements (IVAs) or even bankruptcy proceedings.