Traditionally the least expensive way to get a debt consolidation loan was to use the equity you have in your house as collateral. In many cases this involves taking out a second mortgage on your house, or refinancing in order to get some cash out of your house to pay off other debts.
On one hand this is a risky way to do debt consolidation. You take that debt is unsecured on financial instruments like credit cards and you roll it into secured debt like your home mortgage. This means that debtors can come after your house if you do not make your payments. However the reason that this type of debt consolidation has a lower interest rate is because the risk is moved from the lender to you personally. You have to pay a higher interest rate for a higher risk loan. Your home mortgage is a lower risk loan for the lender than the outstanding balance on your credit card.
Given the historic low interest rates we are experiencing today, this risk might be worth taking. You can get a lower interest rate mortgage today then you probably could’ve at any time in the past. By refinancing you may be able to get the cash out you need to pay off your higher interest that in some cases you may be able to get a rate as low as three or 4%.
What you want to watch out for situations where you could become insolvent by losing your job or having some other catastrophe. Make sure you have enough cash reserve to handle being out of work for a while in case something should happen to you.
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