We’ve probably all heard the term debt consolidation in the media or from your mailbox. As prices at the pump, energy cost, and even grocery bills keep going up and up, consumers will find their financial budget gets tighter and tighter. Debt starts squeezing the wallet harder every single day. As debt begins to take over, consumers begin to look for some relief. This is where debt consolidation comes into play.

What Is Debt Consolidation?
Debt consolidation is the process of arranging bills and debt so that the consumer saves money by combining the bills into one loan or payment. Debt consolidation is primarily used to lower the monthly payments for the consumer or to secure a lower interest rate. The ultimate goal of debt consolidation is to free up money in the budget or pay off debt completely.

In some cases, consumers can combine unsecured debt into one unsecured loan. In most cases, debt consolidation involves several unsecured debts into one secured loan. This secured loan has collateral. The typical collateral for this loan is a house. This is why consumers are bombarded with home equity loan offers on a regular basis.

A collateral loan typically offers a lower interest rate to the consumer, because the lender is at less risk. The consumer finds the lower interest rate to be alluring to stretch their dollars.

Student loans primarily used to pay for college expenses can become burdensome over the years. These loans can be consolidated, as well, but typically the steps are different for student loans than for unsecured debt from credit cards.

Students are allowed to consolidate debt with a private lender one time to receive a better interest rate. After the student has taken advantage of the private refinance option, they can only refinance again through the Department of Education. Student loans are not actually refinanced. In reality, the debt is locked into a specific rate of interest as opposed to standard refinancing. More on Debt Consolidation Articles.