Secured Debt Consolidation – Risking Your Assets as Collateral

Debt consolidation is a form of debt relief that combines multiple debts into one account. Or, in other words, it uses one loan to pay off multiple loans. In some cases, this provides unique benefits to the consumer and can be a viable option. And for some, it’s an appealing option when other loans aren’t available due to bad credit. In general, though, debt consolidation lengthens repayment, costs more, and puts the consumer at risk. The worst kind of consolidation is secured debt consolidation because this poses even more risk. Secured debt consolidation involves using an asset, such as a home or vehicle, as “security” for the loan. While this makes the loan less risky for banks, it’s much more risky for consumers. Why? Because consumers lose the asset if they fail to repay the loan! We are going to cover some types of secured debt consolidation and explain in more depth why it’s usually a bad idea.

Types of Secured Debt Consolidation Loans

Let’s take a closer look at what types of collateral can be used in secured consolidation loans. Below are the types of collateral along with different ways they can be used in the debt consolidation process.

Real Estate

Consumers can use their homes or other real estate as collateral when obtaining a consolidation loan. A home is often considered a consumer’s most important financial asset, so this can be considered a high-risk loan.

Home Equity Loans

A home equity loan can be used as a form of debt consolidation, although this isn’t always the case. It works by using the equity in your home (the value of your home that you already own by paying toward your mortgage) to provide cash. In a traditional home equity loan, this comes as a lump sum, but in a home equity line of credit this comes as a revolving credit account. This cash can be used for just about any expense, but by taking the cash you are also taking out a loan to pay that cash back.

This is used as debt consolidation when you use the funds to pay off debt, such as credit card accounts. In essence, you have moved these credit accounts into a new loan—your home equity loan. The credit accounts likely have high interest rates, above 15 percent, but the home equity loan will be lower, maybe around eight percent, for example. As a result, you have basically cut your credit card interest rates in half. But keep in mind that you are likely also lengthening the repayment.

Cash Out Refinancing

This option is very similar to a home equity loan and can also be used as a form of secured debt consolidation. There are a few key differences, though. In a home equity loan, you keep your original mortgage and take out a second loan. This is not the case with cash out refinancing. In cash out refinancing, you actually replace your first mortgage with a new, larger mortgage. For instance, if you wanted to liquidate $50k of your equity to cash, this $50k would be added to the total remaining mortgage balance in the form of a new loan.


Cash Out Financing

We’ve already covered this concept, but it can be applied toward vehicles too. If you have equity in your car, you might be able to turn that into cash and replace the amount with a new loan. Essentially, you refinance the vehicle at the amount it is worth. For example:

Your car is worth $12,000 but you only owe $8,000. Let’s say you want to get quick cash, in the amount of $4,000 (equity), maybe to pay down credit card debt or take care of repairs. If eligible, you could refinance a new loan of $12,000.

While this is still generally considered a risky financial practice, it can provide benefits if your credit score has significantly improved since taking out the first loan. Why? Because banks and other lenders use your credit score to determine the interest rates you are charged. If your credit score has improved, refinancing could get you a much lower rate and end up saving you money. And, you can use the cash to pay off any outstanding high-interest accounts.

The problem here is that you are creating a bigger loan for yourself, which could potentially put you in a deeper financial hole. A better solution would be to budget carefully and have an emergency fund in place to cover car repairs and other unexpected expenses.

This method, when done with a bank or credit union, typically requires decent to good credit.

Title Loans

Car title loans are the “payday loans” of the auto industry. Like with payday loans, title loans often don’t require a credit check and present consumers with astronomical interest rates and APRs. Also, just like with payday loans, consumers can quickly find themselves in a vicious cycle, where the only way to get out of one title loan is to roll it into another. But the biggest difference from payday loans is that there is collateral at stake—your car!

Surprisingly, recent research from Vanderbilt shows that less than 10 percent of vehicles used in title loan programs are repossessed. This number is lower than many experts might have predicted, but it doesn’t mean that title loans are a good idea. Those who use this lending option can end up paying thousands more than the amount of the original loan.

People often use title loans when they have an urgent and unexpected expense; it’s not typically a go-to consolidation option. If safer loans or refinancing options aren’t available, consumers may panic and make the choice to use a title loan. It’s best to first consider all other options, including communicating directly with creditors about the situation, making arrangements for a hardship program, and talking to representatives at credit unions or banks about safer lending options.

Personal Items


If you’re a fan of reality television, you might already know about the ins and outs of pawning. What you may not realize though is how much money this can cost in the long-run. Pawning involves trading in items of value for cash. The amount received is often far less than retail value, and is sometimes even far less than resell value. The main benefit is that the transaction can happen quickly, and you have an opportunity to get your item back. Doing this will require the consumer to pay hefty interest and service fees, often referred to generically as “finance charges.”

This is not typically used for “consolidation” per se, but it could be. For instance, several small credit balances could be paid off using this method. More commonly, pawning is used in a pinch, to generate some quick cash for an unexpected expense. Like with other types of consolidation, smart planning and an emergency fund are better options. In this case, selling the items online could be a better option as well, unless it’s an item of sentimental value that is “worth” the extra cost via interest.

Retirement Savings

401k Loans

Consumers can create their own form of secured debt consolidation by borrowing from their 401k. While this is typically a “last resort” of sorts, there are situations where it may make sense, and in many ways it presents less risk than other consolidation options.

The specifics of this type of consolidation may depend on the company that services your 401k and the policies of your employer. No credit check is required for a 401k loan. The potential borrower usually just needs to submit a 401k loan request to initiate the process.

This low interest loan can be used to pay off high interest accounts, anything from high credit card debt to student loans. Due to IRS regulations, interest will be charged on the loan, but it is paid back into the 401k so that the money continues to grow (although its growth is likely less than its usual return on investment).

Of course, the opportunity cost of this consolidation (what you’re missing out on) is the ability for that money to grow, at a higher rate. The policy varies by company, but those who cannot contribute to their 401k while the loan is active are at an even greater disadvantage. In fact, a report from Fidelity claimed that a $30,000 loan could cost a borrower $600,000 in the long run if that borrower does not continue to make contributions during the loan period. For this reason, consumers on firm financial footing who have a realistic debt-to-income ratio should not consider this option. But, it can be feasible for those in deep high-interest debt.

There are a few disadvantages to this method. First, if you leave your employer or are laid off, you may have to repay the loan on short-notice, often within 60 days, or pay taxes on the remaining balance along with withdrawal penalties (these are the normal repercussions of a 401k withdrawal, which is different than a 401k loan). The other disadvantage is that certain companies do not allow contributions during the loan period. When this is the case, your savings will not be able to grow as quickly and you may pay more in taxes since you will be able to shelter less money in your 401k. One way to leverage this disadvantage is to put more money toward the loan itself.

Given these disadvantages, the best use of this form of debt consolidation is to pay down any high-interest accounts immediately, so that you can restart your retirement contributions as soon as possible.

The Pros and Cons of Secured Debt Consolidation

The pros and cons of secured debt consolidation are very similar to unsecured consolidation, with the added element of collateral.

We could sum up the pros as follows:

  • Can be used to get a lower interest rate or a fixed interest rate
  • Can provide the convenience of just managing one account and making one payment

The cons of secured debt consolidation include:

  • Puts assets at risk
  • Uncertain implications for credit score. Can improve credit score when debts are paid off but can also damage credit score if utilization increases on the new account.
  • Can lengthen repayment, leading to higher costs

Alternatives to Secured Debt Consolidation

There are better ways to take care of unsecured, high-interest debt than rolling them into a loan that jeopardizes important financial assets. The first way is to budget effectively, have an emergency fund for unexpected expenses, and maximize the amount of money you put toward the debt each month. The problem is, that if you’re already struggling financially this isn’t realistic.

A better option would be to communicate your situation to your creditors—let them know what’s going on and find out what arrangements can be made. You might just qualify for a hardship program that could make your financial burden a little lighter.

If this isn’t available, or if it doesn’t provide enough help, the best option just might be a debt management plan. Unlike consolidation, a DMP doesn’t risk assets, it allows you to build a healthy credit history, and it gets you the lower interest rates you need to survive month-to-month. It’s operated by nonprofit credit counselors who provide the tips and tools you need to increase savings, pay down debt, and create a healthy financial future.

If this sounds like it could help you, speak with a credit counselor for a free review of your financial situation.

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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40 responses to “Secured Debt Consolidation – Risking Your Assets as Collateral”

  • Martha

    I have a lot of secured loans like for instance world fun. Can I combined them into one with debt relief.

    • Thomas Nitzsche

      Hi Martha, Unfortunately secured loans are a little harder to work with than unsecured debt, like credit cards. Your options are to work with the original creditor to see if they can modify or refinance the debt, or seek out a way to pay off or refinance the loan using other assets or a new company. Of course, your ability to do this depends on your financial situation and credit standing. Good Luck!

  • Curtis Chandler jr

    Do your help with secure loan

    • Thomas Nitzsche

      Hi Curtis, secured lenders do not work with credit counselors in Debt Management Plans (DMP), but our counselors are able to provide advice for how to handle secured debt during the credit counseling process. It is a free service, so will only cost you your time if you would like to connect with us to discuss please call 877-877-1995.

  • Tali Fowler

    How to reduce my 2 secured loans into one as it is to high of a payments. Togethether there is a balance of 10000 or so. What do i do?

    • Thomas Nitzsche

      Hi Tali, Secured loans have limited options. You can either work with the original creditors to see if they can modify the terms or refinance the debts, or you can look for a new lender who is willing to refinance the debt at better terms. Other options would include liquidating assets to pay off the debt, family loans, retirement funds loans or balance transferring to unsecured debt (this would require excellent credit).

  • sandra martinez

    I have 2 secure loans that I need help with I can not make those high payments anymore can you help me out thanks

    • Thomas Bright

      Sandra, I would suggest giving us a call. While our Debt Management Program typically can’t cover secured debt, one of our counselors can review your overall budget and other debt obligations and help you develop a plan. Perhaps there are some changes that would enable you to put more money toward these loans, and we could help you identify those.

  • Mike Glenn

    A friend is about to have hardship financialy. Her mer monthly income will decrease by 300.00. Her alamony will stop this coming May 2017. She does not make enough to make her car payment and credit card payment. Is it possible to negotiate her debts to an affordable rate?

    • Thomas Bright

      Hi Mike,

      Our counselors would be happy to talk through that with her. If she has multiple credit cards, then reduced interest rates and/or lower monthly payments may provide much need relief and help her get through the income decrease.

      She can call 877-877-1995 or get started by filling out our online form.

  • Thomas DeWitt

    i have had to declair bankruptcy ,that isn’t helping me at all, they want me to catch -up on what i am behind on plus make the regular payments , plus pay my trustee, plus pay my regular utilities; there just isn’t any way i can do all of this on my regular income.i have been denied once on my bankruptcy and the first of September i will be denied again because i cannot make all of these that point all of my creditors will reposse everything ;my home, vehicle,etc… i have about 90,000 in secured debt, all i want is to consolidate them into one payment, is there anything i can do in this matter.??

    • Thomas Bright

      Hi Thomas,

      You are definitely welcome to contact us to see if a counselor can help. It sounds like you may already have a bankruptcy attorney, but you might also consider reaching out to a different attorney who may be better suited to helping you sort this out.

  • Alyssa

    I have loans with collateral is someone can help me to paid them all in one and I can paid you in a month those loans give me a headache and I have two months not paid them I’m working but only part time.

    • Thomas Bright

      Hi Alyssa,

      We would love to talk more about how we can help. You can call us at 877-798-0878 for an immediate session, or 800-750-2227 for general questions.

  • Pam murrell

    i have a 5000 loan against my title how can I get this pf off cheaper. I pay 500 mnth just interest

    • Thomas Bright

      Sorry to hear this. The three best options are usually to consolidate/refinance that title loan with a reputable company, free up more money in your budget to pay it off faster, or downgrade and get a cheaper car in order to free up some money to pay this off. Our counselors would love the chance to review your budget and goals, so don’t hesitate to contact us.

      Best of luck.

  • Hello

    I have been laid off for a couple months now. (And enjoying every bit of it). I am not in financial distress but tomorrow hasn’t come. I paid my new truck off up until July 2017. And everything else is paid off in full like other trucks boats, equipment etc. All but my mortgage. I really just need someone to shake their finger at me and tell me what I should be doing to BUDGET. I am not at all on track for the future. But I want to be. Can someone help me with a budget and future financial plan.


    • Thomas Bright

      Absolutely, our counselors can (for free) review your budget line by line and make suggestions for you.

  • jacqueline

    I have aboutv20.000 in secured ddebti need help.i pay about 900 a month to different finanace companies.

    • Thomas Bright

      I would strongly encourage you to give us a call at 800-750-2227. While our program doesn’t deal with secured debt specifically, our counselors should be able to help with other aspects of your budget and other debt you may have (like credit cards), which can certainly make the secured debt more manageable. They will have lots of advice and suggestions for you.

  • any help for secured debt like a car loan or house.

    • Thomas Bright

      While secured debt won’t qualify for our specific program, a counselor can help with recommendations for how to best handle your situation. If you have unsecured debt (high credit cards, etc.) then we can help by putting that on a more structured payment plan, which may then free up more resources for your secured assets.

  • Anonymous

    Ok, I have about a $9,000 Secured Car Debt that I need to figure out since payments are too high and 20% interest rate. Can you help with it or could you please give me advice on what to do or who to contact? I’m working on my credit with a Law Firm yet it may take a while to be able to refinance to get lower interest rate, and lower payments.

    • Thomas Bright

      We would love to take a look at your budget and help evaluate your options. Please give us a call at 877-877-1995.

  • Jayden

    I have 2 secure loans. Is there any way I can consolidate them both.

  • Daniel

    Hello, I have about $180,000 of debt included property ,Vehicles , equipment from my business and credit card debt.I have not missed a payment in 10 years and I make over 20 different payments each month . about 7k a month
    Is there a company out there that loans out money to pay all these combined business and personal loans or split the business from the personal to 2 loan payments. I can put up the tangible assets for collateral lncluding property ,equipment and vehicles

    • Thomas Bright

      Hi Daniel,

      Yes, there are definitely ways to do that. You can take loans, or try balance transfers to pay off these accounts. You need to be careful, though, especially with balance transfers because you don’t want to end up paying more interest down the road. Balance transfers usually start at 0% and then go up to 18 or higher after a year, so it’s really a race against the clock. Even if you take a more traditional personal loan, you will want to ensure that the new interest rate is really favorable. One other idea would be to come up with a solution for the credit cards specifically, and then work on the other items separately. That’s where something like our Debt Management Program could really come in handy.

      Best of luck, and please let us know if you have any other questions.



    • Thomas Bright

      I’ve passed along your information to our customer service team, and someone should be contacting you.


  • Sherry

    I went through a lot in 2014 and got signature loans and a title loan which was a horrible decision now my car is broke down and I call around to consolidate my loans and they claim they can’t help me. I don’t know what else to do because my job cut my hours now I’m in a financial crisis

    • Thomas Bright


      I’m sorry to hear that you are going through a rough stretch. I think the best thing will be to go through a free counseling session so you can get a better sense of your options. If you want to do that, just call us at 800.750.2227 or fill out our form.

      Best of luck, and hope we can help!

  • dianna

    That i cant get any help on ? But here,s the bad thing is the stuff i put towards the 2 loans i dont have anymore because. It all quite working so i junk it? And i,am on a fixed income also ?

    • Thomas Bright

      Please give us a call at 877-877-1995 and a counselor can take a closer look at what’s going on and help explore your options.

      Thank you,
      Thomas Bright

  • Barbara

    I currently have 2 title pawns and 3 or 4 payday loans. I’m interested in seeing if these bills can somehow be consolidated?

    • Thomas Bright

      Hi Barbara,
      I will pass your information along, but also encourage you to call us at 877-877-1995 for the quickest service.

  • Wrenn L Green Sr

    I have tried every way to get just $17,000 to keep my properties from being sold off at auction, which is what a jealous neighbor has caused me to get into. It has brought on physical ailments,mental anguish and a very bad retirement outcome. Just waht he wanted to see happen to me. I just wish I was a friend of the golf winner from yesterdays play. 09-14-14 He won 1.4 for the game and 10 million bonus. Wow it really hurts near the bottom of the money ladder.

  • Wrenn Lee Green Sr.

    I have been to banks and credit unions trying to get a consolidation loan that would pay off all outstanding debts. My credit looks bad but with a consolidation loan that would pay everyone what I owe them and put me into a better position for repayment. I have real estate collateral I’m willing to stick my neck out with to do this for the better incentives ahead. I need as Jamie said to get the help because their isn’t one lone ranger out here. There are a lot of people in dire straits scenarios.

    • Thomas Bright

      You are right, when times are tough sometimes these seem like the only options. I’d strongly consider you to look into a Debt Management Program first, so you can determine if there’s a less risky approach for you.

  • jamie thompson

    I tried going to my bank.but they wouldnt even talk to me i am in dire staits at this point i need help please

    • Thomas Bright

      Sorry to hear that Jamie. I would suggest giving us a call or filling out a quick form here so that one of our counselors can take a closer look at what’s going on and offer some advice for you, free of charge.