MEANING:-
Debt consolidation is when you take out a new secured loan (a debt consolidation loan) to pay off all your unsecured debts combined into a single monthly payment - often at a lower interest rate. The focus of your repayment is to pay off the new consolidation (secured) loan rather than dividing your payments to your creditors.

You may be able to take out a debt consolidation on your own using the home equity loan or a debt consolidation loan from a bank.
A Home equity loan is usually secured with your property, hence the lower interest rate compared to your unsecured loans i.e. personal, credit card loans

Myth: Debt consolidation saves interest, and you have one smaller payment.

Truth: Debt consolidation is dangerous because you treat only the symptom.

BENEFITS
• Debt consolidation loans usually have a lower interest rate and tend to be spread over a longer period. So your weekly or monthly payments are smaller.
• Debt consolidation can make budgeting easier because you only have to manage one loan.
• You will often pay a lower interest rate with a consolidation loan than you will with hire purchase and credit card debt.
• However, debt consolidation won’t solve your problems if you continue to take on new debt. It takes discipline – your focus needs to be on getting rid of your existing debt rather than adding to it.
• If you need to borrow to make ends meet or can’t resist the temptation of easy credit, get help from a budget adviser.

RISKS
Consolidating or refinancing loans can work if it means you will pay less in fees and interest. But there are risks consumers should consider when consolidating debt:

• By extending the loan term your monthly payment and interest rate might be lower, but you might pay more interest in the long run if you take longer to pay back what you owe.
• Consolidating debt alone does not get you out of debt; improving spending and saving habits is key. Stop spending beyond your means cuts it. Put your old credit cards in a drawer so you won't use them and don’t apply for new ones to avoid getting back into debt.
• Using a home equity loan or line of credit to consolidate consumer debt. While these loans offer low interest rates, they also put your home at risk if you fail to make the required payments. Be very cautious about taking this route. It doesn’t make sense to lose your house because you couldn’t pay your credit card bills.
• There can be extra fees and charges including ‘hidden’ fees for alterations, late payments and payment defaults. You could even be charged for paying off your existing loans early.
• To reduce the risks, find out the total cost of consolidating before you sign up. Shop around and make sure you read all the fine print.
• Companies specializing in debt consolidation may charge higher interest than your bank. Talk to your bank about what they can offer before signing up with a new company

• You can consolidate your debt yourself for free with a new loan or low-interest credit card.
• Consolidating debt for convenience. The simplicity of a single monthly payment is not a sufficient reason to consolidate debt.

The Real Way to Get Out of Debt
The answer is not the interest rate; the answer is a Total Money Makeover. The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Get an extra job and start paying off the debt. Live on less than you make. It is not rocket science, but it is emotional, which is why most people need help getting through it from qualified financial advisors. Don't rely on debt consolidation!

References:
1. https://www.sorted.org.nz/ Debt consolidation
2. http://credit.about.com/ Will Debt Consolidation End Your Debt Trouble?
3. http://www.investopedia.com/ Debt Consolidation
4. http://blog.readyforzero.com/ Is Debt Consolidation a Good Idea?
5. http://www.daveramsey.com/ The Truth About Debt Consolidation