What debt types does debt consolidation cover?

While inflation has cooled substantially in recent months, the lingering impacts of the long-term inflationary environment continue to take a toll on Americans. Right now, prices on housing, food and other essentials remain high, and these higher costs have stretched many people’s budgets to their limits. As a result, many people have turned to short-term borrowing options, like credit cards and personal loans, to make ends meet — and are now looking for ways to better manage their debts. 

In this context, debt consolidation, whether it’s pursued through traditional means or a debt consolidation program, offers a way to combine your various debts into one manageable monthly payment. By consolidating your debts, you can potentially secure a lower interest rate and pay off your obligations faster, making it a sound choice to consider when you’re feeling overwhelmed by high-interest debt.

However, not all debts qualify for consolidation and knowing which types of debt you can include is an essential part of assessing whether this solution is appropriate for you. So what types of debts can typically be consolidated?

Explore your best debt consolidation options here.

What debt types does debt consolidation cover?

There are a few different types of debt that can be consolidated, including:

Credit card debt

Credit card debt is one of the most common forms of debt to consolidate through a loan or a program, and because credit cards tend to come with high interest rates — the average is about 23% currently — this type of debt is a prime candidate for consolidation. By consolidating your credit card balances into one loan, you can potentially secure a lower interest rate. This is particularly helpful if you have outstanding balances on multiple cards, as consolidating these debts into a single payment can save you money on interest charges.

Get rid of your high-rate card debt today.

Personal loans

Personal loans can also be consolidated, whether you need to consolidate just your loans or in conjunction with your credit card bills. If you have multiple unsecured personal loans with different terms and interest rates, consolidating them helps to simplify your repayment process. By combining them into one lump sum, you can reduce the hassle of managing multiple payments and potentially secure better loan terms, particularly if your credit score has improved since you first took out the loans.

Medical bills

Medical debt can be overwhelming, especially when you’ve faced an unexpected illness or emergency that resulted in large bills that you cannot pay off immediately. After all, while medical bills typically don’t carry interest like credit cards or loans, they can still disrupt your financial life if left unpaid. Luckily, many debt consolidation programs allow you to consolidate medical debt as part of the consolidation process. By rolling these bills into a single payment plan, you may be able to avoid collections and clear your medical debt faster.

Student loans

You also have the option to consolidate your student loans, whether they’re federal or private student loans. For some borrowers, consolidating their student loans through a private lender may offer a better overall interest rate. If you’re planning to consolidate any of your federal student loans, though, it’s important to approach that decision with caution, as federal student loans offer certain types of protections that private student loans do not, like income-driven repayment plans or loan forgiveness. 

Auto loans

In certain situations, you can also consolidate auto loans. However, this typically only makes sense if you have multiple auto loans, perhaps from refinancing different vehicles, and want to streamline payments or reduce your overall rate. For example, if you have multiple car loans with high rates, you may find that consolidating your auto loans with other debts helps reduce your overall repayment cost. It’s important to review the terms of any auto loan before deciding to consolidate, though.

Retail store cards

Retail store cards often carry very high interest rates — the average store card rate is over 30% right now — which can result in hefty interest charges, especially if you only make minimum payments each month. Many people will acquire multiple store cards without realizing how quickly the debt can accumulate, but debt consolidation can help combine these balances and reduce the total amount of interest paid over time. If you’ve been juggling several store cards and are struggling to keep up with the interest charges, consolidating these debts can simplify your financial situation.

Payday loans

Payday loans are notorious for having exorbitant interest rates, which can trap borrowers in a cycle of debt. Some debt relief programs will allow you to roll payday loans into a consolidated debt package, which can reduce your interest payments and help you get out of the payday loan trap. While not all lenders offer consolidation for payday loans, exploring this option can provide much-needed financial relief.

The bottom line

Debt consolidation can be a valuable tool for managing various types of debt, from credit cards to medical bills and even payday loans. By understanding which debts can be consolidated, you can better assess your financial situation and explore options that provide relief from high rates and multiple payments. Just remember that while debt consolidation can provide relief and simplify your finances, it’s also important to address the underlying habits or circumstances that led you to accumulate debt in the first place.