A debt consolidation loan is one loan, whether it's a new low rate credit card, home equity loan or second line of credit, car title loan, or personal unsecured loan utilized to pay off all of your other debt.  The ultimate goal is (in this context, they can be used for other purposes, of course)--to combine all of your debt into one loan with a lower combined interest rate and overall monthly payment in order to get out of debt.  Be aware of other fees paid to obtain this type of loan. 

No matter what kind of loan you shop for get the very lowest interest rate possible. You always want to pay off a consolidating loan in the shortest amount of time to avoid getting deeper in debt. Plan to pay off all of your debts in three to five years starting with the highest interest rate debt first. 

Consolidate your debt and lower your payments today!!

Most Typical Debt Consolidation Loans

Credit Cards--Many low rate credit cards offer you a lower rate than a standard debt consolidation loan. Just be sure to get a card that doesn't charge for transferring new balances. By transferring a higher interest credit card debt to a lower rate card, you can pay more towards the principal of your debt and pay it off quicker. Consolidating loans always makes sense if you can lower your interest on your debt.

Home Equity Loan or Line Of Credit--A home equity loan offers you a fixed interest rate for a fixed period of time. A home equity line of credit is a pre-approved credit limit where you can have money available as you need it. An equity line has variable interest rates that usually start lower than the equity loan fixed rates.

Many lenders offer no or low closing costs for home equity loans and credit lines. Closing costs or loan costs are an important consideration to keep in mind if you use this for consolidating loans. The interest on these loans is usually tax-deductible if you itemize but you should get a tax accountants advice for your situation.

Make sure you understand the total cost of refinancing when consolidating mortgage loans. You want to end up with a lower monthly payment than you have now but calculate the cost of the interest to see if this is a good option for consolidating loans in your case.  It is never a good idea to get a 100%+ mortgage to pay off your unsecured creditors...you end up putting your house on the line if you are unable to meet your obligations.

Car Title Loan--A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. Car title loans put at high risk an asset that is essential to the well-being of your family -- your vehicle.

Payday Loan--A payday loan is basically a cash advance on your paycheck at an unusually high interest rate.  You write the finance company a check for the amount borrowed plus interest, and they lend you the principal.  Then, they hold the check until payday, usually up to 14 days, and cash your check.  Most companies will give you the option of rolling over the loan for a set finance charge.

This is not a type of loan that I would recommend applying for when you are behind on your debt and have no credit cards. If you absolutely have no choice, then shop around.  Get the best interest rate possible.  Check with the Better Business Bureau before you transact any business with a cash advance company.

Student Loan--A student loan is not usually a loan used to consolidate debt, but it's a loan that can be used instead of taking out a higher costing bank loan.  Therefore, it was included in this list. It is a loan usually taken out to assist in the cost of college tuition, books, housing, and other fees.  Because the federal government guarantees payment of this type of loan, the interest rate is lower than that of an installment loan from a typical lending institution. It is definitely a better option than a high interest rate credit card but you must qualify under strict guidelines provided by the government.

Note: Student loans can be consolidated.  For more information on consolidated loans, view College Loan Consolidation.

Conclusion:

So if you're asking yourself why should I consolidate my bills? You can easily answer that by looking to see if you can save money by any of these methods. Consolidating loans allows you to eliminate the high interest costs of your debts and pay them off much quicker.  Make sure that you understand the terms and conditions of your loan before you sign any contracts.  Read the fine print and don't hesitate to ask questions if you don't understand something completely.