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What Are the Different Types of Debt That I Am Unable to Consolidate?

What Are the Different Types of Debt That I Am Unable to Consolidate?

The average American has $90,460 worth of debt when you include home mortgages. With numbers this big, it makes sense that some people might feel overburdened and overwhelmed by the reality of the debt that they owe.

When you have multiple debts that have high interest rates, it can feel like you’ll never get ahead. For this reason, many people choose to consolidate their debt to secure a lower interest rate, pay off their debts faster, and make paying their debts back simpler.

However, not all types of debt can be consolidated.

Let’s take a look at what you need to know about the difference between unsecured and secured debt so you can make the best decision for your personal finances.

What Is Debt Consolidation?

Debt consolidation is a way to combine multiple different debts into one single payment. This can be a good idea for people who have a number of different high-interest debts that are able to get a lower interest rate for their debt consolidation method.

When you consolidate debt, it can help you pay back less interest and get on top of your debt and personal finances. This can be a useful tool to help boost financial health so long as it is used responsibly.

It can also help simplify the repayment of debts by combining multiple debts into one easier payment.

Which Types of Debt Can’t Be Consolidated?

While debt consolidation can be a useful financial tool, not all types of debt can be consolidated. The first thing you’ll need to understand to learn which debts can and can’t be consolidated is the difference between secured debt and unsecured debt.

Secured debt is a loan that you take on by putting up collateral for the loan. This collateral serves as a way for the lender to repay the funds in the event of default. Common types of secured debt include auto loans and mortgages.

Unsecured debt, on the other hand, has no collateral backing. This means that if the borrower ends up defaulting on the loan, the only way for the lender to collect what they are owed is to initiate a lawsuit.

One important thing to understand if you are considering debt consolidation is that only unsecured debt can be consolidated. This means that you can’t consolidate things like auto loans or mortgage payments. Other examples of secured debt include a home equity line of credit or a home equity loan, a boat loan, and an RV loan.

Which Types of Debt Can Be Consolidated?

Typically, unsecured loans can be consolidated. Examples of unsecured loans that can be consolidated include:

  • Credit card debt
  • Payday loans
  • Student loans
  • Unsecured personal loans
  • Medical bills
  • Utility bills
  • Cell phone bills

If you’ve decided that consolidating your unsecured debt makes sense for your financial health, there are a number of different approaches you can take. Let’s take a look at your options in the next section.

 What Are the Different Types of Debt That I Am Unable to Consolidate?

What Are the Different Options For Debt Consolidation?

When you consolidate debt, it can help to reduce your interest costs, shorten your payoff period, and make your payments more manageable. There are a number of different ways you can approach debt consolidation, and it’s worth weighing out the pros and cons of each before making your decision.

Apply For a Balance Transfer Card

Balance transfer cards are credit cards that allow you to consolidate credit card debt from other companies in one place. Many of these cards offer introductory 0% APR rates for a period of time. This means that if you can pay off your debt within a specified period of time, you won’t have to pay any interest.

Get a Personal Loan

Another option worth looking into are personal debt consolidation loans. These can have lower interest rates than other types of loans, particularly if your credit is good.

Start a Debt Management Plan

This could be a good option if you are having trouble qualifying for one of the other options on this list. These plans don’t affect your credit score unlike some of the other consolidation options. However, bankruptcy could potentially be a better option if your debt can’t be repaid within five years and amounts to more than 40% of your income.

Tap Into Home Equity

If you own a home, you might be able to take out a line of credit or loan using the equity as collateral. These loans can come with a lower interest rate because they are secured by your house. That being said, if you don’t keep up with your payments you can lose your house.

Consider 401(k) Savings

This is not the best option but can be used if all the other types of loans won’t work. This type of loan has its benefits, such as having a lower interest rate than other loans and not negatively impacting your credit score.

However, there are heavy fees and penalties if you can’t repay and it reduces how much money is in your retirement account. Additionally, you might have to pay the loan back faster than expected if you quit your job or lose your job.

Is Debt Consolidation Right For You?

Understanding which types of debt can’t be consolidated is essential before you start considering how to manage your debts. If you are primarily concerned with loans like your mortgage or car loan, you will likely have to find another means of debt management other than consolidation.

Debt consolidation can be a useful tool to help give you some breathing room from your high interest rate debts. That being said, it’s important to use this responsibly. Otherwise, you can simply end up in more debt down the road.

Did you find this article about the types of debt that can’t be consolidated useful? If so, be sure to check out the rest of our blog!