Is Debt Consolidation Right For You?

A debt consolidation service provides a loan which pays off some or all of your existing debt, and replaces it with a single loan with a single payment. The promise is to replace various high interest loans, such as credit card debt, with a single loan with a lower total monthly payment.
A related type of service is a debt management service, which does not provide a consolidation loan, but instead pays your various debts for you.

It may seem at first blush that there is no downside to debt consolidation - you end up with a lower monthly payment and have more cash on hand at the end of each month, while your debts are still being paid off. However, depending upon how the consolidation loan is structured, you may end up paying a lot more interest on your consolidated loan, and taking a great deal more time to pay off your debt, than if you keep paying your present individual debts.
Additionally, there is a chance that obtaining a debt consolidation loan will hurt your credit. Depending upon the scoring used, obtaining a new line of credit and paying off existing loans can result in your being classified as a greater credit risk.
For people who are able, the best way to resolve outstanding debt is often to pay more each month to service their debt - focusing on paying down the principal of the highest interest debts with non-deductible interest (e.g., credit card debts).
Finally, you must ask yourself if you will demonstrate the fiscal discipline necessary to benefit from debt reconsolidation. If you obtain a consolidation loan with a lower monthly payment, but immediately run up new credit card debts, you will almost certainly end up in a worse position than you were in prior to consolidating your debts. You can even end up in a cycle of obtaining "consolidation" loans, with the commissions, fees, and interest rates accumulating to put you deeper and deeper into debt.

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