December 17, 2023

How Many Types of Debt Can You Consolidate?

Explore how debt consolidation can simplify your finances by combining credit card debt, secured loans, and more into one manageable payment.

Debt consolidation, a term often tossed around in financial circles, is more than just a strategy to manage your debts. It's a decision that requires careful consideration of various factors. 

With its high interest, credit card debt is one of the most talked about when it comes to debt consolidation. Secured loans, backed by assets and unsecured debts, each bring their own set of rules to the consolidation table. The process involves putting together multiple debts and understanding how the consolidation affects your overall financial health. 

Types of Debts to Consolidate

Debt consolidation applies to various debts, including but not limited to credit card debt, multiple smaller debts, secured loans, and high-interest debts.

  • Credit Card Debt: This is a common type of debt for consolidation, especially due to the high-interest rates that credit cards usually come with. Consolidating credit card debt can simplify the repayment processes and potentially save huge amounts in interest, especially if the consolidated loan has a lower interest rate.
  • Student Loan Debt: Both federal and private student loans can be consolidated. However, it's important to note that consolidating federal student loans with a private lender can result in the loss of certain federal loan benefits. Consolidation can simplify repayment and potentially reduce the interest rate.
  • Medical Debt: While medical debt doesn't typically accrue interest, it can still be consolidated. This can be particularly beneficial if large medical bills are difficult to manage. Consolidation can help prevent these debts from being sent to collections, which would negatively impact credit scores.
  • High-Interest Personal Loans: Consolidating high-interest personal loans can be smart, especially if the borrower's credit profile and income have improved since the original loan was taken out. This can lead to lower interest rates and more manageable repayment terms.

Types of Debts Not to Consolidate

When considering debt consolidation, it's important to understand that not all debts suit this process. Due to their nature or the terms they carry, certain types of debts are not ideal candidates for consolidation. Here are some types of debts that you should generally avoid consolidating:

  • Low-Interest Debts: If you have debts with low-interest rates, consolidating them may not do you much good. Consolidation often aims to reduce high-interest rates, and including low-interest debts can result in a higher overall interest rate for the consolidated loan.
  • Secured Debts: Secured debts, such as mortgages or car loans, are linked to assets. Consolidating these debts into an unsecured loan could turn a secured debt into an unsecured one, leading to a higher interest rate. 
  • Student Loans: While you can consolidate student loans, doing so can sometimes lead to losing certain borrower benefits. These benefits might include income-driven repayment plans, loan forgiveness programs, and flexible deferment options for federal student loans. 
  • Debts with Prepayment Penalties: Some loans come with prepayment penalties, meaning you'll be charged a fee if you pay off the loan early. When consolidating, if these debts are included, you might pay more due to these penalties.
  • Medical Debts: Medical debts often have different terms than other debt types. They might not accrue interest or could be subject to different collection practices. Consolidating medical debt might lead to unnecessary interest charges or complicate the flexible payment options often available for medical bills.

Recent Debts: If you've recently taken on new debts, consolidating them might be too soon. It's probably better to consolidate your debts that have been outstanding for a while, where the long-term interest implications are more significant.

How to Consolidate Debt Effectively

Debt consolidation offers a streamlined approach to managing various types of debt. By understanding the kinds of debts that can be consolidated and the methods available, individuals can make informed decisions to improve their financial situation.

Primarily, four types of debts are commonly consolidated:

  • Credit Card Debt: Often bearing high-interest debts, consolidating credit card debts into a single loan with a lower interest rate can lead to significant savings and simplify repayments.
  • Student Loan Debt: Both federal and private student loans can be consolidated. However, it's crucial to consolidate federal loans through the Department of Education to retain certain benefits and protections.
  • Medical Debt: While typically interest-free, large medical bills can be overwhelming. Consolidating these into a personal loan can make repayment more manageable.
  • High-Interest Personal Loans: Consolidating these loans into a single loan with a lower APR can reduce monthly payments and overall interest costs.

Effective consolidation methods include:

  • Debt Consolidation Loans: These replace multiple high-interest debts with a single installment at a more reasonable rate.
  • Balance Transfers: Transferring credit card balances to a card with a lower interest rate can reduce interest accrual.
  • Home Loan Balance Transfers: For multiple home loans, transferring to a new lender can consolidate debts and potentially offer better terms.
  • Personal Loans: Flexible and with potentially lower rates, personal loans can consolidate various debts into one manageable payment.


Debt consolidation can be a powerful tool for managing and reducing debt, but it requires careful consideration and strategic planning. By understanding the types of debts that can be consolidated and choosing the right consolidation method, individuals can simplify their financial obligations and work towards a more stable financial future. 

Remember, the key to successful debt consolidation lies in maintaining disciplined financial habits post-consolidation. With these considerations in mind, debt consolidation can be a step towards achieving financial freedom and long-term fiscal health. Take the first step towards a debt-free life with Bright Money. Our tailored plans, designed to reduce debt and build credit, are just a click away!

Suggested readings

  1. Do consolidation loans hurt your credit?
  2. 3 reasons to use personal loans to pay off debt
  3. Can I get a Debt Consolidation Loan with a 580 Credit Score?


1. What are the risks of consolidating debt?

Consolidating debt can streamline your finances, but it's not without risks. The primary risk involves extending the repayment period, which might lead to paying more in total interest over time. Another risk is the possibility of higher overall costs if the consolidation loan has a higher interest rate than the original debts. 

Additionally, if the loan is secured against an asset, like a home, failing to keep up with payments could put the asset at risk. It's crucial to carefully assess the terms and ensure they align with your financial goals.

2. Is it smart to consolidate debt?

Consolidating debt can be smart, especially if it helps lower interest rates, reduces monthly payments, and simplifies financial management. It's particularly beneficial if you can secure a lower overall interest rate and are disciplined enough to avoid accruing new debt. However, it's not a one-size-fits-all solution. 

It's smart if it aligns with your financial situation and goals and you're committed to not falling into debt. Before deciding, consider the total cost over time and the impact on your credit score.

3. What loans cannot be consolidated?

Typically, secured loans like mortgages or car loans cannot be consolidated with unsecured debt consolidation loans. Federal student loans also have specific consolidation rules and are usually consolidated separately from other types of debt. 

Debts like back taxes or court-ordered payments are generally not eligible for consolidation. It's important to check with lenders about which types of debt they will allow you to consolidate, as policies can vary.

4. Can we merge two loans?

Yes, merging two loans is possible and is a common form of debt consolidation. This process involves taking out a new loan to pay off debts faster, effectively combining them into a single loan with one monthly payment. 

This can be particularly helpful if the new loan has a lower interest rate or more favorable terms. However, it's important to consider the repayment terms and total interest costs of the new loan history compared to the existing debts to ensure it's a financially beneficial move.

5. Is it expensive to consolidate debt?

The cost of consolidating debt varies based on several factors, including the interest rate of the new loan, any fees charged by the lender, and the loan term. 

While consolidation can potentially lower your monthly payments, it's important to consider the total interest cost over the life of the loan. Sometimes, a longer repayment period offsets a lower monthly payment, which could result in higher overall costs. Additionally, some lenders may charge origination fees, closing costs, or penalties for early repayment, which can add to the cost.

6. Is debt consolidation bad for credit?

Initially, debt consolidation can hurt your credit score due to the hard inquiry of applying for a new loan. 


Disclaimer: Bright credit is a line of credit that can be used to pay off your credit cards. Subject to credit approval. Variable APR ranges from 9% to 24.99%, and credit limit ranges from $500 to $8,000. Apr will vary based on prime rates. Final terms may vary depending on credit review. Monthly minimum payments are as low as 3% of the outstanding principal balance plus the accrued interest. Also, you can pay more than the minimum due if you want to pay down the loan faster. The credit line originated by Bright or CBW Bank, a member of FDIC. Products and services are subject to state residency and regulatory requirements. Bright credit is currently not available in all states.

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