What Debt Can Be Consolidated?

Learn what kinds of debt can be consolidated with the specialists at AmONE. Contact us today to discover how we can help you consolidate your debt with the right management plan.
A young married couple look at their computer with smiles due to their decision to consolidate debt

Debt crosses many lines.

For some, even the slightest bit of credit card use will be considered debt. For others, being indebted to thousands of dollars is actual debt. The majority of people have debt whether they will admit it or not.

For some, debt may be credit cards, a car loan, or maybe a student loan.

Some might owe the Internal Revenue Service (IRS) money or they have medical costs they need to pay off.

Mortgages might be seen as a solid investment, but in the end, it is still debt.

If you have thought about consolidating your debt by applying for a loan for debt consolidation, you should know what debt can be consolidated.

Credit Card Debt

Credit cards are one of the most common reasons people apply for debt consolidation loans.

Rather than paying each credit card on its due date, borrowers who consolidate credit debt can make one payment to be disbursed to each creditor they owe.

Credit card debt is ideal for debt consolidation programs because many times, the interest rate consumers are paying on their credit cards is higher than the rate they are able to get on a debt consolidation loan.

When you consolidate your credit card debt and are paying a lower interest rate than you were on your credit cards, you can save hundreds or possibly thousands of dollars on interest. This can cause your monthly payments to be much lower than what you were paying on your credit card balances.

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Medical Debt

Medical debt can be crushing, but there are a few ways you can deal with it.

If you aren’t able to pay it all off at once, medical debt is treated a bit differently than credit card debt. For instance, unpaid medical debt will not show up on your credit reports for at least six months after you default on it. Also, most hospitals and clinics will let you make payments over a few months to pay off your debt.

If it will take longer than a few months to pay a hospital or doctor what you owe, they may start to tack on late fees or interest. At that point, it could make sense to use a debt consolidation loan to pay off your medical debt.

Federal Student Loans

Student loan debt can be consolidated, but there’s a difference in how you would consolidate a private or a federal student loan.

Federal loans may be consolidated through the Department of Education. Federal student loans come with some specific rights that you may not have with private student loans. For instance, loan deferral, forbearance, and forgiveness are all important aspects of federal student loans that give you more options if you can’t make your payments. In most cases, you would not want to give up those options by using a private loan to pay off your federal student loans.

You have several options available if you want to consolidate your federal student loans.

Private Student Loans

Private student loans can also be consolidated, but there are special consolidation loans for private loans.

Private student loan consolidation can help you make your payments more manageable if you have several of these loans. You are essentially refinancing these loans, so you may be able to get lower payments and a lower interest rate, in addition to funneling all of your loans into one loan and one monthly payment.

If you have both private and federal student loans, there’s nothing to stop you from putting them all into one private student loan debt consolidation plan if it makes sense to do so.

Personal Loans

Some people may have various loans they are paying on, like a personal loan or a small business loan.

A debt consolidation loan is a form of a personal loan, so it could make sense to lump together your credit card debt with any personal loans you have into one debt consolidation loan.

You’ll need to look at the interest rates on any personal or small business loans you’re currently paying on and compare them against the rate being offered for a debt consolidation loan.

It only makes sense to consolidate if you’ll receive a lower payment or save money through having a lower interest rate.

Find the best personal loans, compare rates, and see how much money you can save by consolidating your high-interest credit cards.

What About Mortgages and Loan Consolidation?

Mortgage loans are much different from debt consolidation loans.

You can’t consolidate your mortgage loan into a personal loan, nor would you want to. Still, some consumers opt to use their home’s equity to consolidate other debt, by doing a cash-out refinance or taking out a home equity loan.

This type of consolidation differs from a debt consolidation loan but has similar features, such as a monthly payment.

When you do a cash-out refinance to pay off debt, you use the equity in your home to pay off your debt. The amount you take out is added to your mortgage loan. You will have a new payment and loan terms.

Home equity loans are a bit different.

You are taking a loan based on your home’s equity, but instead of refinancing your first mortgage, you are taking out a second mortgage.

You will have a second mortgage payment. You will be able to consolidate your unsecured debt, but the downside is you are using your home as collateral on the loan.

Unlike a debt consolidation loan, using your home equity to consolidate your debt means that if you can’t pay the loan for whatever reason, even if you are current on your first mortgage, you could end up losing your home. It may not be smart to trade unsecured debt for debt secured by your home.

Bottom Line

Debt consolidation is a viable option for those who are tired of dealing with multiple credit cards and a calendar full of payment reminders.

Consolidating student loans, credit cards, and other debt could help you pay off your debts faster as you’re unlikely to miss payments and you may even get a lower interest rate.

AmONE’s trained professional can assist you in finding debt consolidation solutions, and in matching you with credit repair services if you’re interested in achieving a higher credit score as well. Contact AmONE today to get on your way to being debt-free.