As consumers we all have a credit score which is calculated according to our financial history. A credit score is used by lenders to decide whether a consumer is a 'high-risk' or a 'low risk' borrower. This, in turn, affects the borrower's potential to receive good or bad rates of interest on things like loans, mortgages and credit cards. The poorer a credit rating, the higher the rate of interest the consumer will be charged. The better a credit rating, the lower those rates of interest will be.

Credit ratings reflect a consumer's history of making repayments on a range of financial commitments such as mortgage fees and credit payments. The deeper in debt, the less likely to be able to meet the repayments a consumer becomes, the worse their credit score is likely to be and the less likely they are to be able to escape the spiral of debt.

A credit rating can be reversed with careful money-management, so that outstanding debts are honoured. If their credit rating is improved the borrower represents less of a risk to lenders, thus the possibility of lower interest rate borrowing is improved.

Homeowners can consolidate their debts using the equity on their house, thus reversing their credit score and potentially returning some financial stability to their lives. This is acheived by taking out either a secured or unsecured loan.

A secured loan is directly related to a consumer's home. The loan is 'secured' against the borrowers home meaning that, if the borrower becomes unable to make repayments, the loan can be reclaimed from the selling of the house.

This type of loan is cheaper to manage than its counterpart, as the loan is secured. It is also possible to borrow larger amounts when using your house as collateral as well as the possibility of borrowing over an extended period (Secured Loans from Asda Finance for instance can be stretched over 240 months at an APR of 7.6% meaning you'd pay £795.76 a month - £191,277.40 in total - on a £100,000 loan). So, whilst the interest rates that accompany secured loans are often temptingly low borrowers should balance this against the risk of home repossession.

The risk for the lender is greater with an unsecured loan because the borrower's home isn't being used as collateral. Consequently, lenders will inevitably offer considerably higher interest rates, the length of the loan is likely to be limited to a shorter term and less money made available. There is also a minimal risk that the house can be repossessed in rare circumstances, although, statistically, this is a rarity. If you're planning on taking out a loan it's prudent to first have a look at loans calculator such as the one on the A&L loans website, there will be something similar on most loan provider's websites. Loan calculators will help you establish how large a loan you can actually afford to take out.

You should also consider contacting a Debt Counseling Service taking out either type of loan. If you're struggling with debts these services offer invaluable free advice and try to manage the situation so that someone in debt and/or with a poor credit history can try and consolidate their debts without risking their home.

Anyone worried by a mounting credit card debt would be well advised to look out for a better deal that should at least save them a bit of money in the short term, the aim should be to look out for competitive balance transfer rates - there's no shortage of 0% balance transfer cards on to pick from; the RBS credit card for instance represents a particularly attractive deal with 0% on balance transfers for 13 months, a 2% balance transfer fee and 0% on purchases for 3 months. For an up to date overview of the best offers it's a good idea to check out one of the many credit card comparison sites like the Motley Fool credit cards centre or uSwitch.

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