I'm so amazed with the number of articles online about loans, student loans, debt consolidation, student loan consolidaton and similar stuff. This high volume of articles is enough to pull my attention to gdig deep into this topic. What is loan consolidation or debt consolidation anyway? Maybe this kind of service has become so popular because of the ongoing recession and it helps many who are in need. Before all however, I would like to understand first what is Debt consolidation to be very exact.

According to Wikipedia's definition, 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. This, in accounting view point is like a rolling credit although they are not exactly the same. As I can see it, it's reasonable enough to find for a lower interest rate with almost the smae amount of loan, right? But careful attention must be paid everytime, there might be tricks within this scheme so everyone needs to open his/her eyes and mind on this.

As further explained by Mr. Wikipedia, 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. In an accounting/business stand point, this is just normal. There is always a price to everything. If you open your eyes to it, there is really no big difference. I mean, your house is at stake here and the risk, the very heavy burden is in your shoulder this time as the debtor, Can you imagine selling your house if you can't pay your loan? At fist this can really look attractive but if you accidentally lost your job, you are finished! Again, be careful then.

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. As usual, there is a catch in there. The debtor only temporarily relieves himself or herself of the debt but it's still there. It is only to widen your debt and risks at the bottom. Always remember that no one gives out something without nothing in return, debt consolidators are not there as your angel but they are there to gain profit out of you. Thus, watch out!

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. Can you imagine ultimately losing your house just because at first you became compulsive with your credit card? That is a scary thought, right? I mean, come on! You consolidate your credit card loan because you can't pay them normally anymore. This means you overspent!

The bottom line to this is, another loan is not really the answer to an existing loan. But if it really helps, why not? But as I always see, no free lunch around and everything has a cost so be very very very careful! Debt consolidation? Or loan consolidation? Think many times and compute the risks versus the benefits!