A Debt Consolidation loan allows you to pay off all of your "little bills" in exchange for one "big bill". This is typically a secured loan meaning you will need some form of collateral to secure it such as home equity or some other large asset.

A Debt Consolidation loan is certainly good in the sense that it ends creditor phone calls by helping you pay everything off. So instead of worrying about 5-10 small credit card bills with varying interest rates, you now only have to worry about one large bill with one interest rate.

• Debt burden remains the same: That's right: Your debt is still the exact same amount which means you have basically traded a lot of little headaches for one big migraine.
• May increase time it takes to become debt free: One of the most appealing "selling points" of the Debt Consolidation loan is that you usually end up paying less each month-but this is an illusion in most cases. To lower your monthly payment, the debt is spread over a longer period of time. In the long run, you may actually end up paying more than you would have if you had just paid off the "little headaches".
• Missed Payments May Cost You Your House, Car, etc: Debt Consolidation loans typically require collateral and are known as "secured debts". If you end up missing payments, the lending institution can take possession of whatever collateral used to secure your loan-be it your home, car, etc. This is not the case with unsecured debts like your credit cards making this "debt relief cure" potentially more dangerous than
the original disease!
• More difficult to obtain: Because of the financial crisis and falling home values, it is more difficult to obtain a Debt Consolidation loan these days. Tighter lending standards and lower home equity values have made this "debt relief" option available only to those with good credit or some serious assets!