Secured Debt Consolidation Definition

Secured debt consolidation is a type of debt consolidation where an asset is pledged as collateral for a debt consolidation loan. Imagine (maybe you don’t have to imagine) you have a dozen or so small credit card and past-due utility debts that are all accumulating high interest, late fees, and over-limit fees. You also happen to have a beautiful sailboat-your pride and joy-that you own free and clear.

You could approach your credit union and negotiate a secured debt consolidation: the credit union would issue a loan in an amount sufficient to fully pay off all of the small debts using your sailboat as collateral, making the debt consolidation loan secured. Voila! You have only a single debt at a low interest rate and you’re freed from those pesky over limit fees and-at least for the moment-late fees. Of course, if you default on the secured debt consolidation loan the credit union will seize and liquidate your beloved sailboat.