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In this case a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the foreclosure of the asset in order to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy. The decision to consolidate must be weighed carefully.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan.

Sometimes these fees are near the state maximum for mortgage fees.Some predator companies will knowingly wait until a client has backed themselves into a corner. The customer must refinance in order to consolidate and pay off bills that they are ehind on the payments. If the client does not refinance they may lose their house. They are willing to pay any allowable fee to complete the debt consolidation. In practice, many people are in credit card debt because they spend more than their income. Debt consolidation is often advisable in theory when someone is paying credit card debt. The total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.