A consolidation loan is a loan that is used to consolidate your debt into one loan. Basically the proceeds from the loan are used to pay off other loans or credit cards. The consolidation loan can be an unsecured loan, but generally with a lower interest rate than credit cards. The other option is to have a consolidation loan that is secured either by a car or a home. This could be a second mortgage or a home equity loan.
Consolidation loans are use to lower interest rates and to lock in a better rate. They can lower monthly payments, but often extend the amount of time that you will pay on the loan. This means that they may not save you as much money in the long run.
Consolidation loans can lead to problems, because people will use them to pay off the credit cards, but then continue to spend on the cards. This means that in a few year most people will have maxed out their cards again, and have the consolidation loan to deal with as well.
Student loan consolidation is an option worth looking into. It locks in a lower rate, and can reduce payments as well as making all of your loan payments into one low monthly payment. For all other types of consolidation loans you need to be sure you are changing your behaviors when you take out the loan.
