You’ve heard the term thrown around before: “debt consolidation.”

It’s possible that you’re not entirely sure what it means, and that’s OK. Many people are unsure of the purpose, benefits and risks of this method of managing finances. In the easiest terms, debt consolidation is taking out a loan to pay off credit cards, store cards, and other unsecured debts.

With debt consolidation, you remove the need to make multiple payments and roll them all into one. Many people are intrigued by the allure of one payment versus many. There is also an amount of satisfaction that comes with paying off credit accounts, despite the new loan it took to do it.

The pros: Debt consolidation can help organize your debt by combining it. You can budget better by accounting for one payment. One of the biggest benefits is often receiving a lower interest rate that is comparably less than what a high-interest credit card is charging you. This method also helps those who need to salvage or begin to repair their credit score, since they may no longer be affected by late payments on credit cards. Late loan payment penalties still apply, though.

The cons: Although debt consolidation has its uses and benefits, it is not the right solution for every situation. Paying off credit card balances will give them a zero balance – creating the temptation to start spending again with plastic, which could cause an even bigger debt problem. Another thing to consider is that although the interest rate you receive may be lower, your terms of payment may be longer. This means that the interest you pay over time may potentially be a larger amount than your initial card balance.

Here’s what to do if you’re thinking about debt consolidation: According to Consumer Credit, a website from American Consumer Credit Counselling, 4 major debt consolidation qualifications are proof of income, credit history, financial stability, and equity (including collateral). Make an appointment to talk to a financial counselor or loan officer at your financial institution who is an expert on credit and can help you make an informed decision about how to best pay off your debt. You’ll be most successful with debt consolidation if you go in with a solid plan for paying it off and avoiding future unnecessary debt.

Debt consolidation should be a solution to help ensure financial security, create more stable payments, and reorganize debt so it is easier and more convenient to manage. It should not be a reactive solution that is not given full consideration and commitment. When done right, this method can provide a fresh start for paying off debts – putting you closer to the financial future you’ve always wanted.