It is highly advised that anyone paying credit card debt take part in debt consolidation. Credit cards can carry a much higher interest rate than an unsecured loan from a bank. With debt consolidation one takes out one loan to pay off many others, and this is often done in an effort to secure a lower interest rate. People also do it to secure a fixed interest rate or just for the convenience of servicing only one loan. Even though debt consolidation can be from a number of unsecured loans into another unsecured loan, it usually involves a secured loan against an asset that serves as collateral.

There are instances where debt consolidation companies will discount the amount of the loan. If a debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount, but a prudent debtor will keep shopping around for consolidators who will pass along some of the savings. Consolidation can, in fact, affect the ability of the debtor to discharge debts in bankruptcy. This means that the decision to consolidate must be weighed carefully.

A popular consolidation in the U.S. is federal student loan consolidation in which existing loans are purchased by the Department of Education. Unlike private sector debt consolidation, student loan consolidation doesn’t incur any fees for the borrower. Instead, private companies make money on student loan consolidation by reaping subsidies from the federal government.