Read also:

I like the word 'consolidation'. It conjures up images of control and order. You can consolidate virtually anything; travel plans, a wardrobe, a job and even thoughts. Consolidation of debt is always a hot topic and many individuals are trying to take advantage of the benefits it is supposed to deliver.

Sounds great doesn't it? Instead of writing out 10 cheques to 10 different creditors you can make one easy payment to a single source and the bill-writing headaches should be gone forever. Better still, by consolidating your debt you could get the added advantage of reducing your monthly payments. So what?s the catch?

Well, the first thing you need to know is that financial institutions don?t offer the service because they love you; they clearly make money from the exercise. The business of lending money is very profitable and the more money they can lend a client, the more interest they earn.

Banks have a lot of competition out there and retailers have cottoned on to the fact that they too can make money out of extending credit to their clients. Over time the banks' share of the credit pie has decreased. If they have a client who has a good credit record and is keeping up with her payments, why not give her cash to pay off other loans and start earning the extra interest?

Although the reduced payments and extra cash may look very appealing, there are a few curve balls you may have to deal with:

Do you qualify?

A consolidation loan is not always easy to get. Some of the loans are pre-approved, but if you have heard via the grapevine that they are available, be aware that you have to be a good credit risk to qualify (click here to learn how to improve your credit score).

A car repossession or judgement against your name will probably knock you out of the running. The rules vary depending on the institution you approach and some of the specialist banks require you to earn a rather large salary in order to qualify for a debt consolidation programme.

Call around and see who is offering the best deal for your particular requirements. Don?t be afraid to negotiate either; if you have a good record they will be keen to have you as a customer.

Article continues on page two and three: the dangers of debt consolidation and who should consolidate...