A debt consolidation loan is a single loan which pays off your other smaller loans. You can reduce your monthly payments by combining the smaller loans into a single lower interest loans. Debt consolidation results in switching from unsecured debt to secured debt.

The repayment of the debt consolidation loan is based on the calculation of debt to income ratio of an individual. You should also be aware of the fact that the monthly repayment is calculated after a putting aside a significant amount for your monthly expenditure.

Getting a debt consolidation loan with an attractive rate of interest would depend on your previous credit history. If you have a very poor credit report, then your chances of getting a debt consolidation loan would depend entirely on the discretion of the debt consolidation firm. The firm would ask for a security or collateral. Your house may be held as collateral as it reduces the risk to the lender. If you are not willing to risk your home you can put some other items such as car or jewelry as collateral.

Some critical Advantages are:

• Remember if you are neck deep in debt, your credit rating becomes very poor. It would be difficult to apply for any kind of loans. Debt consolidation helps in improving your credit ratings if you pay your monthly installment of the debt consolidation loans.
• Debt consolidation reduces your monthly payments by increasing the term of the debt. It helps reduce the interest you pay.
• It is easier to pay off a debt consolidation loan than multiple small loans. You are also eligible for tax breaks.

Some critical disadvantages are:

• Debt consolidations results in a longer repayment period. You may actually pay more eventually than you were originally supposed to.
• You may lose your house that was secured by the lender as collateral, if you default on the repayments. You might deeper into debt.

There are certain eligibility criteria for debt consolidation loans. You need to have a steady source of income. You are required to provide the proof of the same in the form of documents.

Your credit score has to be good. If your spouse is working then his or her credit history is taken into account.

Before taking debt consolidation loan it is recommended that you study the pros and cons, understand the legal terminology of the contract and the suitability to your present financial condition. Do not take things for granted and make assumptions. A little online research may be required.

Nowadays, debt consolidation loans have come to the rescue of several people affected by debt. So if you are one of those consult a qualified and experienced debt counselor to see whether you qualify for debt consolidation loans and comprehend its ramifications. You can thus take an informed decision. So emerge from debt by taking advantage of debt consolidation loans.