What is debt consolidation? When you consolidate debt, you take out a loan to pay off other debts and bills. You are then left with one remaining debt - the loan.

Pros of Debt Consolidation

1. Fewer Payments
   If you need to pay a $2500 car loan, a $2000 credit card bill, and a $500 emergency room charge, you could get a loan for $5000 and pay off those three debts. You still owe the $5000, but you will only have to remember to make one payment each month.
   
2. Lower or Fixed Interest Rates
   If you have high interest credit card bills, a loan may offer you a lower and/or fixed rate. Your interest rate helps determine your monthly payment, so if your rate goes down, so may your payment. A fixed rate means your loan payment will not change over the life of the loan. Credit card rates may change at any time, which could cause your monthly payment to increase over time.
   

Cons of Debt Consolidation

1. Interest Rate
   It is important to pay attention to the interest rate. If the rate of the loan is higher than that of your current debts, consolidation may increase your monthly payments. 
   
2. Loan Term
   The term of loan -- the length of time you have to pay off your loan -- is also important. Make sure it's not too short or too long. You want to have enough time to pay off the loan, but you don't want to have the debt hanging on longer than necessary.
   
3. Closing Costs
   Often with a loan, there are fees and other costs you must pay. These are called closing costs, and you should add them to the loan amount to determine the full cost of the loan.

Should You Consolidate Debt?

It's important to consider the pros and cons of debt consolidation to ensure the costs do not outweigh the benefits.  If you need assistance in deciding whether consolidation is right for you, consider contacting a financial professional who can answer questions about your individual situation.