Debt Consolidation Loan Definition

A debt consolidation loan is a large loan typically issued by a bank to a debtor for the express purpose of paying off several smaller loans. Debt consolidation offers a quickly simplified debt repayment paradigm and usually involves a loan at a much lower annual percentage rate than the loans which it satisfies. However, debt consolidation loans are usually secured against a primary residence-often as a "second mortgage"-and thereby convert unsecured credit card debt into secured debt. Numerous studies have concluded that debt consolidation loans are almost never successful in long-term debt reduction.