A: Debt consolidation is the process of combining all (or some) of your unsecured debt into a single loan, typically for the purpose of lowering your overall interest rate and therefore total monthly payments.

The consolidation effort itself is negotiated by your new loan provider, who can lower your monthly payments by as much as 50% (30-35% is a more typical range). Debt consolidation companies have better interest rates with most creditors than an average consumer, which is how they can largely reduce your payments; by reducing and in some cases eliminating interest charges from your accounts. They are in essence 'buying' your debt and paying it off at a better rate to your original creditors.

Debt consolidation is most useful for people with a number of high-interest loans. These may include credit cards or other high-interest loans/bills; basically any debt with 15% or higher interest is a prime candidate for lower rates. A debt consolidation service can combine all these high-interest loans and allow you to make just one convenient monthly payment that could be as low as half of your current obligations.

How it works:

You apply for debt consolidation at a good company or organization.

Once approved, you agree to pay the new, single monthly payment on time at your reduced rate.

You typically must also agree to stop using any credit cards that were included in the consolidation.

Through the negotiations of your debt consolidation, your creditors should now be satisfied with their new arrangements. This means; no more collection agencies calling, lower monthly bills, and no more late fees or other unexpected charges.

If you're considering debt consolidation, you can compare debt consolidation lenders here to get a better understanding of how much you can save. There is no obligation to request more information or pre-qualify for lower rates.

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