Debt consolidation loans are another name for what is commonly thought of as credit card debt loans, because that is their primary purpose--to help people consolidate and rectify the debt that accumulates from personal spending.
Significance
The difference between debt consolidation loans (or loans in general) and credit card debt is that one is secured and the other is not. Essentially, a loan is usually secured against your assets, while credit card lines of credit are not, so you risk losing your assets (usually your house) and a loan, but there's relatively little risk, other than destroying your credit, with credit card debt loans.
Function
A debt consolidation loan serves to do what its name suggests: take several different, higher interest loans of credit and replace them with a single, low-interest, fixed-rate loan to pay them all off. Because these lines are secured, the interest rates can be lower because there is less risk involved for the bank.
Considerations
While this can be a fantastic option for replacing high-interest debt that has gotten out of control, keep in mind that it is a loan that needs repayment, the interest rate will still be substantial, and it will be held against your assets, which means that unlike defaulting on a credit card, defaulting on the loan will cost you your home.
Misconceptions
For many this is billed as a one-hit wonder miracle bailout for debt, but it's simply not the case. It is still a substantial loan, and generally of considerable size so that you won't be saving very much out of pocket. Often your best bet is to actually barter with your credit card company to lower rates.
Warning
Debt consolidation loans can be an effective tool when used appropriately, but keep in mind that a secured loan with continued spending beyond your means will land you straight into a destroyed credit portfolio and bankruptcy proceedings. Approach debt consolidation with the advice of a credit management adviser and a commitment to more responsible spending.
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