Debt consolidation is completely different than debt settlement or debt management. Debt consolidation does NOT involve any debt forgiveness, or lowering of interest rates on your existing loans.

In its simplest sense, debt consolidation involves taking out one large loan, such as a home equity loan, to pay off one or a couple unsecured loans or lines of credit that are generally at a higher interest rate. Consumers usually consider debt consolidation for one or more of the following reasons:

• Get a lower average interest rate on their debt.
• Lower their total monthly loan payments.
• Convenience and peace of mind in knowing that only one payment needs to be made to cover the multiple former debts.

You should be careful, however, when considering debt consolidation options. Typically a debt consolidation loan comes from refinancing your home or getting a home equity loan. In such cases, homeowners who use a home loan or line of credit to pay off high interest credit cards are converting unsecured debts into secured debts.

If you feel very confident that you will have no problem in paying back all your debt obligations, then converting unsecured debt into secured debt is not necessarily a bad thing, given that you save a lot of money in finance charges. If you are concerned that you might not be able to make payments to ALL your debt obligations at some point in the future, then it might not be a great idea to convert unsecured debt into secured debt. By doing so, you will be placing a higher debt burden on your secured asset (e.g. your home), which can increase the risk that you might default on the loans that are secured by the asset. Therefore, you might have a harder time in keeping the asset/your home under your ownership (for example, avoiding foreclosure on your home).