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Consolidation can be used for many types of financial obligations, but not all of them. It’s essential to learn which outstanding bills cannot be included in the plan. Those must continue to be paid as usual, and that affects how much the borrower can afford for a monthly payment. The merging of payments is usually accomplished through an installment loan or line of credit.
Types of Unsecured Debt
Only unsecured debt can be rolled into one of these plans. These expenses are not tied to a physical object. If the person is behind on the mortgage or a car payment, this individual must work things out with the financing company. Unsecured debt includes obligations like credit card balances, payday loans and personal loans.
Different Kinds of Credit Cards
Credit cards come in a broad range of financial instruments. MasterCard and VISA cards are issued by many financial institutions. American Express is another general card that can be used at most locations accepting payments with credit. A large number of retailers issue their own cards. Some do so through a large bank, and others manage accounts directly. Department stores and gas stations are the most common. If any accounts are now being handled by a collections agency, it may be possible to have those payments rolled into the consolidation plan.
Many men and women struggle financially because they have medical bills to pay. Even with health insurance, policies may have a high deductible and a large co-pay amount. The policy may not cover certain types of expenses. These bills might be merged into a consolidation plan.
Some unsecured debt is ineligible for these programs. The individual is still responsible for back child support and federal student loans. Federal student loan debt can only be consolidated through a special program focusing on these particular loans.
Back taxes of any sort also must be addressed with the appropriate agency. Some U.S. residents work out payment arrangements with the Internal Revenue Service or their state’s Department of Revenue. Property taxes must be paid to the appropriate governmental treasurer.
Additional Consolidation Advantages
In addition to making one’s expense load manageable, there is another possible benefit to consolidation. The total amount owed will gradually decrease as long as the borrower is responsible enough to stop using credit cards for now. That will begin boosting the person’s credit score with the three major reporting bureaus. If the lending company reports to the bureaus, timely payments also will have a positive effect.
In addition, having a different kind of credit in the person’s history is viewed as positive. That’s useful for individuals who have only had credit cards in the past, but no loans from organizations reporting to the bureaus.