Have you been bombarded by TV commercials that advise you take a consolidation loan? That is, telling you to take out a single, new loan to pay off several existing debts. While this may be a good way of managing your finances, you should be careful – a consolidation loan need not be the right option always.

When should you consider a consolidation loan? Here are the pros and cons of taking such a loan.

On the plus side,

• you may be charged a lower interest rate
• you may need to pay lower monthly installments
• you will know in advance when the debt will be paid off
• you will need to make just a single monthly payment
• you need to deal with one lender
• you can ensure that you do not fall behind on payments

On the other hand, look at the possible disadvantages - risk of repossession of property if you default on a payment for a loan against the property,  more overall payment for a longer period, extra entry charges, some risk because you deal with a single lender, higher interest rate in the case of poor credit rating.