Debt consolidation is a strategy in which you get one new loan and use it to pay off all of your other loans. So instead of having 4 or 5 debts and minimum payments each month you have only one payment. This gives you some breathing room as your monthly payment for the new loan should be smaller than paying the minimums on the debts separately. The goal is to try to get a lower interest rate on the new consolidation loan.

The best source for getting a consolidation loan is usually by taking a home equity loan if you have a home and also have some equity in the home. The home equity loan will be tax deductible and usually will have a fairly decent low interest rate. The only downside to a home equity loan is that you are now trading non-secured debt for secured debt. So if you are not able to keep up the payments on your second mortgage you could eventually lose your home.

For those who can't obtain a home equity loan you can still approach local banks and credit unions for a consolidation loan.

The main trap to avoid when receiving a consolidation loan is charging credit back to the credit cards that you have now paid off. This is a trap that many people fall into and end up even deeper in debt than before the consolidation loan.

When shopping for a consolidation loan be sure to avoid any loan with a higher interest rate than what you are currently paying for the separate debts. Also avoid debt consolidators who build in a fee as part of the monthly payment you make to them. This fee is usually around 10% of the payment. Shop so you find a consolidation loan with no built in fees.