A debt consolidation loan allows you to simplify your finances. If you owe money on multiple cards or are paying back several loans you can consolidate all your payments into one loan, meaning you no longer make multiple payments each month.
Essentially you use the loan to pay off all your existing debts so that you only have to make one repayment a month to the lender you took the debt consolidation loan out from.
Debt consolidation loans fall into two categories: Secured and unsecured.
Secured loans – also known as homeowner loans – are loans taken out against your home. They enable you to borrow larger sums of money but you risk losing your home if you fall behind on repayments.
Unsecured loans – also known as personal loans – are loans which are not taken out against anything. The amount you can borrow will be based on your credit rating and you will not be able to borrow as much as you might with a secured loan, however the lender has no claim on your home should you fall behind on your repayments.