Does the Debt Have to Be All Mine For a Debt Consolidation Loan?

Generally a debt consolidation loan allows you to pay off only debts that you are responsible for. However, a variety of loans can be used for debt consolidation that offer more flexibility. Debt consolidation helps reorganize finances, but it is important to note that your personal debt level increases if you use a consolidation loan to pay someone else's debts.

Home Equity Loans

Home equity loans are often used for debt consolidation loans and allow you to determine how the money is spent. You can pay off your own debts as well as the debts of a spouse, partner or friend. However, the Federal Trade Commission urges extreme caution in using using home equity loans. The loans create a second mortgage, and your house could be foreclosed if you default on the loan.

Credit Union Loans

Credit unions generally take a very conservative approach to loans taken out specifically for debt consolidation. The credit unions may confirm that the loan is being used properly by making payments directly to your creditors. In this situation you would be unable to use the loan to pay another person's debts without disclosing it to the credit union. Some banks may follow the same guideline.

Credit Cards

Using credit cards to consolidate debt can be very expensive, because interest rates are typically higher on credit cards than other types of loans. However, it is possible to use a credit card cash advance to consolidate debts for you and someone else. Note that cash advances add additional finance charges to your account through special fees and higher interest rates on the cash advanced.

Considerations

Advice from a government-approved credit counselor may be helpful if you are considering debt consolidation for you and someone else. The credit counselor can analyze your situation and offer advice. The advice could include referring you to local banks or credit unions offering the best rates on loans suitable for your purpose. The counselor may also talk with you about the dangers of borrowing money for someone else. Find a credit counseling agency in your area by contacting a local charity such as the United Way or Salvation Army.