Loan consolidation or debt consolidation is a term used to define the merging of several loans or outstanding debts into one. Debt consolidation is a widespread practice for people who have taken out more than one loan and are having trouble keeping up with the paperwork involved, or are tempted by the fact that lenders that offer the option of loan consolidation also offer a number of advantages to go with said consolidation.

By loan consolidation, your debts would be paid off by the lending company you are making the consolidation deal with, and you are only left with one debt to pay off, to the aforementioned company. In some cases, this can be a good idea, it can decrease your monthly payments, help you get rid of a lot of unwanted paperwork and also give you a series of other benefits depending on the deal you strike with the lending company, but there can be a lot of disadvantages to loan consolidation as well.

One great disadvantage of loan consolidation is the fact that in order for your monthly payments to become smaller, the loan will get extended over a much longer number of years, which means that if before your loans would have been paid off in say, 5 years, now you will be paying back debt for 10. As such, you will not only be honoring monthly payments for a lot longer, but because of interest rates, the total sum you would end up paying back until the end will be a lot bigger.

The loan for a loan consolidation is usually a second mortgage on your home, or refinancing the home for it’s value plus enough to pay off the loans. That puts your losing your home at risk. If you miss a mortgage payment or two, your house could go into foreclosure.

Depending on where you were finding yourself with the other loans (towards the beginning or the end of the return interval), taking a loan consolidation can be negative because it would make you lose any advantages you might have had from your previous lender as a result of your long standing relationship.

Bottom line, loan consolidation can be a bad idea if you want to get rid of your debt as fast as possible or are feeling reluctant towards the idea of paying more money over time. It also makes it more difficult to sell your house because the price must be higher to cover the new loans.