Consolidation loans are considered a cash out refinance. As a borrower, you have the option have taking cash from escrow, or having escrow paying the debts off for you with most consolidation loans vying for the later. If you choose to have your escrow company pay your debts, you will need to provide current payoff statements and addresses to send the check.
Debt consolidation loans are very popular to help consumers regain control over their finances. There are many different ways to obtain a consolidation loan. One way is to refinance your first mortgage and roll your debts into the new loan. While your overall loan amount will obviously be higher, your debt will now most likely become tax deductible and your overall monthly expenses will very likely decrease considerably as well.
Remember also that consolidation loans or cash out mortgages hinge on the value of your property. So talk to your lender and see what the comparable values (comps) are for your property before moving forward.
Consolidation loans through a refinance is a smart way to eliminate debt. Rolling those high interest credit card and auto loans into your home mortgage can improve your monthly cash flow by eliminating those non-tax deductible cash outlays. If you are overextended on your credit, consider getting into a short-term program that gives you enough time to improve your credit, and refinance later into a lower rate fixed loan.
Consolidating debt can be a good idea because interest on mortgage debt is deductible. Interest on credit cards or auto loans is not deductible. Consolidating debt can lower your payments.
Once you pay of all of your consumer debt with a consolidation loan you should make sure you do not acquire high credit card balances again. There is nothing worse then being in the same debt you were in before you refinanced. Unfortunately it happens to many people everyday.
Debt consolidation loans can be used to pay off any debts that you have as long as you have enough equity in your property to use to pay off those debts. If you are looking to increase your credit scores by consolidating debts, you should consider consolidating revolving charge accounts (major credit cards, store credit cards, etc.) before consolidating installment accounts (car loans, signature loans, etc.)
Many people consider refinancing a HELOC, or home equity Line of Credit, and combining it with the existing first mortgage a consolidation loan as well.