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An extended period of unemployment has led many consumers to rack up credit card balances. Others find themselves in debt while trying to keep pace with rising prices at the pump and supermarket.

There are currently millions of U.S. residents in debt and regardless of how they got it, they need help. Each year, many people use debt consolidation to improve their financial situation.

What is debt consolidation and is it a smart move? There are two sides to the story, so let’s start with the positive. Debt consolidation combines high interest debt into one loan with a lower rate.

The individual makes one monthly payment rather than several and pays a lower amount each month. This can make repaying interest-laden payday loans and cash advances much more affordable.

One payment results in fewer fees, less debt to track, less likelihood of missing a payment, no calls from debt collectors, and lower overall stress. Creditors who see individuals making progress with debt consolidation may provide new credit in the future.

The credit repair feature of debt consolidation alone makes many people choose this path.

However, debt consolidation is not without its drawbacks. This type of loan is usually secured, which means it requires collateral such as a home. Even if people feel confident about repaying the loan, an unexpected situation can render them homeless.

The term of a debt consolidation loan is usually longer than that of the individual debts. This also means the borrower will pay more interest.

Before consumers apply for a debt consolidation loan, they should explore all their options. Free debt advice may be enough to help balances for payday loans and credit card purchases disappear.

Individuals who end up working with a debt consolidation company should be aware of the cost and make sure the loan is affordable.