Debt consolidation is the process involved in taking out one large loan to pay off many smaller ones. This is usually done to secure a lower interest rate, secure a fixed interest rate or for the convenience of only having to pay back one loan.
Debt consolidation can be from a number of unsecured loans into another secured loan, but more often it involves a secured loan against an asset that serves as a collateral, usually your home. In this case, a mortgage would be secured against your home. This means that the risk to the lender is reduced so the interest rate offered can be lower. In certain circumstances debt consolidation companies will even offer a discount off the amount of the loan.
Debt consolidation is usually advisable for someone that is paying off a large credit card debt. Credit cards often carry a very high interest rate.
If you have property such as a home or car you may get a lower rate through a secured loan using you property as collateral. This means that the total amount paid toward the debt is lower allowing the debt to be paid off sooner, incurring less interest.
There are also other forms of debt consolidation for people that do not own property and will allow you to take a number of debts such as a student loan or credit card debt and bring them into one easily managed loan.
Be aware that because of the theoretical advantage that debt consolidation offers a consumer with high interest debt balances, some lenders will take advantage of that benefit of refinancing to charge high fees in the debt consolidation loan.
In addition, some companies will knowingly wait for a client to be backed into a corner so that they must refinance in order to consolidate and pay off bills they are behind on. In certain cases the situation is that the client does not have enough time to shop for another lender with lower fees or they may no be fully aware of them.
Most debt consolidation companies are not involved in this type of activity but it is good to be aware of it.