A loan consolidation involves refinancing that combines a person’s debts, such as credit cards, department store cards, personal loans, medical bills, utility bills, or car loans, and creates one new loan by merging all the bills into one loan policy. This process increases the length of the loan, thus reducing the monthly payments.

A person usually pursues a loan consolidation when he or she has over extended his or her credit, or when the person wants to combine multiple student loans. By consolidating bills, the total monthly payment is generally lower than the total for all bills individually. Not only does the lower payment make paying the bills off easier, but a loan consolidation can also help to save a person’s credit.

Additional reasons for consolidation are:

--     For ease in managing debt load

--     To offer greater cash flow and possibly locking in a lower interest rate

--     To restore deferments or increase access to supplementary deferments during residency

Loan consolidation breaks down into two categories: private loan consolidation and federal loan consolidation. Private loan consolidation involves private loans. Federal loan consolidation involves federal student loans.

Loan consolidation is not the same as combining loans. Combining loans means one lender buys all the loans you have with different lenders in an effort to have all your loans owed to one place. Consolidation also is not the same as loan installments, which involves borrowing all future loans from the same lender. For a further explanation of student loan consolidation, see http://www.loanconsolidation.ed.gov/.