Debt consolidation is a common practice. When people accumulate debt from multiple sources, they may find it very inconvenient to pay so many creditors. Furthermore, many people have debt at varying interest rates, which means some of the money they borrowed is being repaid at higher interest rates than other borrowed amounts. Multiple payments, and high interest on some debts can certainly make consolidation or the practice of combining all debts into a single loan, attractive. Yet debt consolidation pros and cons should be considered before making this leap.

Debt consolidation pros and cons include how this practice normally works. Most people add all debt to an existing secured loan, which is usually a home loan. Obviously, changing all current credit into secured debt has advantages and disadvantages. On the one hand, interest rates are much lower. They also may be tax deductible if they are part of a home loan.

On the other hand, the debt may be carried for much longer. If current credit debt gets rolled into a 20 or 30-year mortgage, smaller amounts get paid each month, and interest rate over time may actually represent a larger sum of money than current debt interest, which has a five to ten year repayment schedule. When people are considering debt consolidation pros and cons, sitting down and doing some math to determine whether true savings over time exists can be valuable.

One of the other debt consolidation pros and cons, since it includes both, is the fact that most consolidation loans are secured. In the pro column, it’s fairly easy with pretty good credit to obtain a refinance of a home that can add in present debts. The problem is that then all debts currently owed are now attached to a person’s property. Should it become difficult to pay a credit card bill, many people can claim bankruptcy without losing most of their assets because this is unsecured debt. In contrast, the person who can’t pay a home loan may lose his home, and if debt consolidation raises home payments, this scenario, especially in uncertain economic times, becomes more likely.

While debt consolidation can mean a total reduction in monthly payments, this only works if people don’t accumulate more debt. Unfortunately, evidence on this issue bears out that a number of people consolidate debt and within a year or two have accumulated just as much or more in credit card debt again. This can lead to the practice of regularly refinancing homes to repay new debt, which may ultimately lead to increasing mortgage payments and less equity in a home. It takes significant discipline to avoid credit card spending in the future and live on a budget. Most people should really think how they can manage this and scrutinize whether consolidating debts will just lead to more money owed in the future.