Consolidation Loans: Definition

"The act of a consumer including all monthly payments into one loan, often done through a bank. Most debt consolidation loans are secured through an asset such as a mortgage, or other form of physical property."

Debt consolidation loans

Consumers should avoid debt consolidation loans, at all costs. It's important for consumers to understand that credit card debt is unsecured debt. This means that given a consumer cannot make his or her minimum payments, the creditors can't really do much in order to collect on the credit that was first given. When a consumer goes to consolidate debt, they often have to provide collateral such as mortgage. Most consumers will not give debt consolidation loans, unless a consumer has physical property to put up. If you were a bank and a consumer came to you wanting a loan (but showed that they were already knee deep in debt), would you give that consumer a loan? Of course not...

Consolidation loans should never be obtained, unless the consumer has the ability to repay the debt in a few short months (which is almost never the case). As previously explained, it makes no sense to turn unsecured credit card debt into secured debt through a mortgage. Doing so may put the consumer at risk of losing his or her home.