The majority of the debts you incur can be consolidated. When you consolidate your debts, you combine them together. Normally there is some type of advantage to be gained from the process. You can receive a lower rate of interest in some cases, and sometimes consolidating your debt can provide the convenience of only having one creditor to pay instead of many.
Significance
Practically all debts can be consolidated, including credit cards, automobile loans, medical bills, second mortgages, student loans and even your first mortgage (the loan consolidation would use the equity in your home, so you have to have an adequate amount of equity in order to qualify).
Considerations
If you consolidate your debts using a company like Consumer Credit Counseling Service, then you cannot include any type of secured loans such as an automobile loan or a mortgage loan. They will only consolidate your unsecured loans or those which do not have security pledged as collateral (see Resources).
Effects
If you car was repossessed and sold at an auction, the proceeds will go towards your balance. In some states you are responsible for the remaining balance or deficiency balance. This balance is not longer secured and can be included in a debt consolidation loan. The same concept applies to a home that has gone through foreclosure and has a deficiency balance that you are responsible for.
Features
Consolidation or debt management companies like Consumer Credit Counseling Service will negotiate with your creditors to get you a lower interest rate and lower monthly payments. In this program, you are required to submit a lump sum payment to Consumer Credit Counseling Service and they will distribute payments to your creditors (see Resources).
Potential
You can also consolidate tax liens if you are applying for a consolidation loan with a traditional lender. The lender will normally include that lien in with the other creditors and issue a check directly to the party that issued the lien.
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