Debt consolidation essentially consists of combining high interest credit cards, loans (car etc.) and other forms of debt into one single payment with a lower interest rate. The concept is simple and makes sense both in terms of simplicity and financially. Many consumers find that having one payment is much easier to manage and decrease the likelihood of forgetting or missing a payment. Obviously, the lowered interest rate also helps lower monthly payments and may also reduce the term of the outstanding debts.

While debt consolidation can be an effective method to manage high interest debt and simplify your bill payment, consumers should carefully navigate the debt consolidation process. This requires an understanding of the key variables so that the loan is actually helping you rather than adding to your financial challenges.

For example, if a debt consoloiation company offers to transfer your debts to a new credit card with an introductory rate of 0% interest, make sure you understand the ramifications of a late payment. In many cases, a missed payment could result in a punitive interest rate increase that results in an overall increase in your interest rate rather than a decrease. Obviously is pays to read the fine print and make sure you understand the terms of the loan.

If you are obtaining your loan online, ensure you receive written documentation for your loan that includes the specific terms of your debt consolidation loan. If you have any questions about the terms it is imperative that make your questions known and receive satisfactory explanations, preferably in writing before agreeing to any loan.