As the economy sits at a stagnant low, more and more Americans have to seek out credit card relief to help lower monthly bills and, in some cases, avoid bankruptcy. Consolidation of debt involves taking out one loan to pay off multiple existing loans with higher interest rates. Some debt consolidations are done through loans secured against an asset, such as a car or a house. The use of collateral to secure a debt consolidation loan helps to lower the associated interest rate by reducing the risk to the lender.

Consolidation of debt is normally viewed as a way to join various higher interest balances into one with a lower interest, adding convenience and, in theory, reducing the overall balance that needs to be paid. Debt consolidation is generally offered by multiple banks and credit unions, so shopping around and some basic application of math skills can ensure that the borrower is truly paying less than he or she would were the debt not to be consolidated.

Also, it is important to note that interest rates are based on the borrower’s credit score. So the earlier a prospective borrower seeks help in consolidating debt, before creditors make negative reports to the credit bureaus, the lower the interest rate the borrower stands to obtain from a debt consolidation loan. As mentioned earlier, the application of any available assets as collateral may also assist with lowering whatever interest rates a borrower may be offered.

Debt consolidation is not an end-all fix all to debt accruement, but if done responsibly can help alleviate the stress of dealing with bills. It must be done with caution, and the borrower must commit to changing necessary spending habits in order to ensure that new debts aren’t incurred and the process of debt consolidation fails.