A common method of helping people get out of debt, consolidation is a way everyone can win, as consumers can reduce or eliminate their obligations while lenders still get paid.
But what kinds of debt can be consolidated?
What Is Debt Consolidation?
There are multiple ways you can consolidate debt. Similar loans are combined into a single new one with better terms. Some credit card companies offer credit card balance transfer offers in which you can move several lines of credit onto a new account that comes with a low introductory rate. It’s important to note that after the introductory period runs out, your interest rate will rise again. Since credit cards come with higher rates, it’s important to reduce your debt load before that happens if you want the balance transfer to be successful.
Debt management plans (DMPs) are another type of consolidation. Under a DMP you’ll work with a credit counseling agency, which figures out a more manageable repayment plan between you and your lenders. These can be effective for people who are right on the cusp of being able to repay their debts.
Debt consolidation can also be accomplished through a debt relief program. Getting a consolidated loan through a debt relief program works similar in concept to the previous two options — similar lines of credit are rolled into one new loan. Generally, people working with a debt relief agency need a bit more hands-on assistance to get through their debt. You can look at resources at Bills.com online debt consolidation to see what options might work best for you.
What Kinds of Loans Can Be Consolidated?
Now that you have a better idea of the process of consolidation, it’s time to look at what kinds of debt can be dealt with in this way. One thing you need to know is only similar debts can be consolidated on one loan. So you can’t consolidate credit cards and student loans on the same account. It is, however, possible to consolidate both of these types of debts with other accounts of the same variety. Here’s a list of some of the more relevant kinds of debt that can qualify for consolidation:
Credit Card Accounts: These are among the most common kinds of debt for consolidation. Whether through a balance transfer, a DMP, or a consolidated loan through debt relief, credit card debt consolidation can help consumers get back on their feet. Credit cards are such a difficult form of debt to overcome because they’re easily accessible and come with high interest rates.
Student Loans: Many people get in over their heads with student loans. One thing that makes them different from other kinds is the fact it’s hard to erase them through bankruptcy. While possible, you do have to show paying the loans will lead to “undue hardship.” This makes consolidation for student loans that much more important. While they don’t have interest rates as high as credit cards, student loans have no collateral and can carry high principal loads. Consolidating through private lenders like Earnest refinance can provide a pathway out of student loan debt.
Payday Loans: One of the most insidious forms of debt, these prey on those in tenuous financial positions by strapping them with absurd interest rate obligations. Consolidating payday loans to something with a notably lower interest rate can potentially help you pay them off.
Medical Bills: These are one of the top reasons people file for bankruptcy protection. Regardless of the ethical considerations, consolidating medical debt can be a way to save your finances.
There are many reasons people consolidate debt. While consolidation won’t always work, it can help people get to a place where they can more reasonably pay back their debt.
