Essentially if you have lots of different debts then consolidation means reducing these to just one single debt. In short you are taking out on large loan, and then using this in order to pay off may of your smaller loans so that you only owe one company money, and so that you only have the one monthly payment coming out of your account to worry about.
This in essence makes it much easier for you to pay off your loans because you won’t have to worry about keeping enough money in your account on the various different dates that your loan repayments are taken out. You will have one manageable payment to worry about at a set time each month, and that means you can organize your finances around this one date rather than having to keep tabs on several different debits.
What this also means is that in some cases you can also reduce the amount you have to pay. In some cases the interest on your consolidation loan will be higher than on that of your smaller loans and in this case you will pay for the convenience of using these loans. In other cases however that consolidation loan will have a lower interest rate than the combined interest of those smaller loans, and this will actually save you money in the long term.
Another benefit of consolidation is that it can improve your credit rating. Your credit rating is the rating given to you by the various banks and lenders that you have dealt with in the past. Each time you have taken out a loan, they will have given you a rating based on how efficiently you paid that back and whether or not the payment was on time etc.
Thus if you can demonstrate your ability to pay back your loans in full and on time, then this will improve your rating because they will report that you managed to pay them back. It won’t matter to them for the most part that you used consolidation – only that you paid the amount back. This then will mean that your rating goes up as a result, and your status is that of someone who has paid back several loans in the past and currently is only paying one.