The theory behind debt consolidation is this:  if you have enough equity in your property, (being the lowest interest payment loan over the longest period of time) you would take out a second bond to the value of your existing small debts and pay them all out of the loan, thereby lowering your monthly repayment amount and freeing up some cash flow.  You are then supposed to use that extra cash to pay in on the second bond to reduce the repayment period as much as possible. 

The benefits are lower monthly payments, a reduced interest rate (short term loans are usually at higher interest rates) and a single payment to only one creditor. There are pitfalls though, so be aware of them before you decide if this is the route to follow.

1 – You are essentially borrowing more money to repay existing debt, so the debt does not magically disappear.

2 – If you are not disciplined enough, you stand the risk of increasing your debt by continuing to use the credit cards or accounts that you just settled, on top of the extended bond.

3 – It is a longer term loan (usually 20-30 years), so you will end up paying a lot more interest over this long period if you don’t pay in anything extra to bring the repayment period down.

4 – If your situation is already dire, you might not even qualify for the second bond.