Debt consolidation loans are personal loans that allow people to consolidate their debt into one monthly payment. The payments are often lower because the loan is spread out over a much longer period of time. Although the monthly payment may be lower, the true cost of the loan is often dramatically increased when the additional costs over the term of the loan are factored in.

The interest rates on personal debt consolidation loans are usually high, especially for people with financial problems. Lenders frequently target people in vulnerable situations with troubled credit by offering what appears to be an easy solution.

Personal debt consolidation loans can be either secured or unsecured. Unsecured loans are made based upon a promise to pay, while secured loans require collateral. Upon default of the loan payment in a secured loan, the creditor has a right to repossess any of the items listed as collateral for the loan. Title loans are an example of secured loans, where an automobile's title is listed as collateral and the borrowers must pay off the loan to reacquire their title. Some creditors require borrowers to list household goods in order to obtain a debt consolidation loan. The creditor has a right to repossess these items upon default of the loan payments. In many states, a person filing bankruptcy can remove the lien on the household goods listed as collateral and eliminate the debt.

Be careful about putting up your valued property as collateral. With high interest rates and aggressive collections, you might find yourself scrambling to save your car or personal property.

Consult with a Certified Debt Arbitrator before signing a debt consolidation loan.

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