Loan consolidation is the practice of gathering all of your debt, from various sources, and having a single organization pay it off. Payments are then made to the single organization which purchased all of your debt and it is usually to gain a single fixed interest rate. The payments are large, but can be placated for several years. In the credit scoring industry this is a single step short of bankruptcy, and will reduce your credit score. Generally, these loans are made by moving credit card debt from various sources towards the secured, usually against a mortgage, loan with lower interest rates. Because of the short period length for credit cards, they are, generally, the highest interest rate. The exception to this could be low credit scoring individual on a short-medium or medium length loan. The practice of doing this is a measure of last resort for those with a spiraling debt crisis.
Loan consolidation is an option of last resort. For example consider what happens when you fall behind on three different credit cards for three months. For three months you are charged a rate between seven and 30 percent depending on your terms. The rate divided per month is between .58 and 2.5 percent per month for three months. After which the company will contact you to discover why you aren’t paying. If you take the initiative and say you’ve lost your job and cannot pay the loan, the company will work with you to develop a payment plan that you can meet. In the final days, the company will send your loan to collections which will contact you. However, if you choose loan consolidate, the company that does so will generally secure their loan by placing a lien on your house. This means that if you do not pay for 90 days, you could lose your house and face eviction from your loan holder. Loan consolidator already considers that you’re in a rough spot and for them it could be more beneficial to seize your home than to wait for you to pay off your loan.