Debt consolidation involves the taking of one big loan to pay off all your outstanding bills by putting up an asset as collateral. This asset generally is a house you own.

The collateral you offer (such as a house) can be sold or disposed off by the creditor to get his money back. So, the risk factor for your creditors reduces, allowing them to reduce the interest rates for you. This means you have a lesser amount to pay and so you can clear it off faster.

This method is generally recommended for clearing off outstanding credit card bills as the rate of interest charged by credit card companies is very, very high.

The type of loan you use to pay off these debts determines how much the interest rate will be reduced. If you get a secured loan by mortgaging your house, you could avail a greater reduction. If you take a personal loan to do so, the reduction is lesser.

Note that if your house is already mortgaged you can take a second mortgage on it.