Consolidation loans are loans that are aimed at turning all other loans into one loan. They have the advantage of only having one loan to track, while they also manage to lower the interest rate and the repayments on the loan.

The way a consolidation loan works is that it brings all the loans that a person has together. This means that it is a larger loan and so for each dollar loaned it is cheaper. It also tends to be secured against a property.

As the loan is more likely to be paid regularly and repaid in full then the loan APR is usually cheaper than an unsecured loan. Finally a consolidation loan is also going to be over a longer period than many of the loans that it replaces. This means that the loan is likely to be at a lower interest rate as the interest has a longer time to build up.

It also means, (and this can be quite crucial), that the repayments are likely to be less each month, as they can be spread out over a longer period. Consolidation loans are popular for people who have decided to deal with debt issues. However they can have a danger - when a consolidation loan is taken out and the other credit facilities are not always paid off, this can particularly apply with credit cards.

This will mean that the credit cards can simply be borrowed against again. This can mean that the credit card problem gets worse as soon after consolidating the loans the credit cards start to put on debt, but this time there is the added consolidation loan. For this reason a consolidation loan should only really be used when the credit cards and other debts have been in a pattern of being paid off over a few months.

If this happens and there is a genuine desire to pay off all the debts (rather than simply get away from creditors letters) then a consolidation loan can be quite useful. Another issue with a consolidation loan is that it is secured against a house. Unsecured loans are not. This will mean that the house is in more danger if there is a default than it was before.

There are alternatives to consolidation loans, which are mainly around looking at the various interest rates and paying off high interest debts with available low interest credit facilities and concentrating any excess repayments on the highest interest debt.