Having lots of debts is different to manage. You may need to track down all debts from one creditor to another including interest expenses and late payment charges. One solution to handling multiple debts is through debt consolidation.

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. More often, debt consolidation 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.

Now, it may sound positive to you to have debt consolidation for easy debt management. However, it may also be a disadvantage to you since most debt consolidation loans are just home equity loans in disguise. They use the equity built up in your current home loan and use it to repay all of your unsecured debts. These debt consolidation loans usually convert all of your current unsecured debts into a secured debt which is now backed by your home as collateral. So, if you were not able to pay off your debts, the debt consolidating company may foreclose your house mortgaged to them.

Aside from having your home mortgaged when you availed of a debt consolidation program, the total amount repaid is often significantly higher due to the longer payment period of the loan.

Having said the statements above, here are the advantages and disadvantages of debt consolidation:

Debt Consolidation Advantage:

- Lower interest rate, usually fixed interest rate for the convenience of servicing one loan

- Lower monthly payments

- Longer period of debt repayment

Debt Consolidation Disadvantage:

- Total amounf of debt repayment is higher than original debt principal

- Danger of house foreclosure if debt left unpaid

I suggest before opting for a debt consolidation program, ponder first if it will give you debt repayment convenience. Otherwise, if this is just another “escape debt” just to pay your current debt which will lead to a cycle of debts, then you should not take the risks of your home being foreclosed.

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