Debt consolidation is designed to lower the monthly payments and the interest rate of a person who has a large amount of debt. A person in debt usually works with a debt consolidation counselor to find a way to consolidation all the debt he or she has into one, manageable monthly payment. The debt counselor usually will do a free debt consolidation analysis to come up with a plan. If the potential client agrees to the plan, it is put into place. However, the client is under no obligation to accept the plan.

The term "debt consolidation" is often misleading and can be abused by mortgage brokers and banks in order to sell someone in debt a high interest second mortgage or to encourage them to refinance their home. A second mortgage or refinancing can, in the long run, put a person further into debt and is certainly not a good solution. A loan is in all probability not the greatest solution to a debt problem.

Debt consolidation enables one to solve the fundamental problems of high debt without having to take drastic steps like declaring bankruptcy. A debtor should first make sure that the terms of the debt consolidation loan are understood. If there are any questions or doubts, they should be discussed with the debt consolidation loan counselor.

The benefits of a debt consolidation loan can be numerous. Monthly expenses are generally reduced by up to 50%. Over limit and late fees are often eliminated by making one standard monthly payments on time. Delinquent accounts turn to current status again boosting the debtors credit rating to a satisfactory level.