If you owe a good bit of money, you’re probably wondering whether or not you should consider getting a debt consolidation loan. In many situations, taking out a consolidation loan is the best way to make progress toward reducing your debt. However, there are several circumstances under which debt consolidation isn’t a wise choice.

Two Situations Best Left Out of Debt Consolidation
Before deciding that a debt consolidation loan is the best solution for all of your debt, take the time to educate yourself about the situations in which debt consolidation doesn’t pay. Federal student loan programs and medical bills are two examples of debt that should typically not be incorporated into a debt consolidation loan.

1. Federal Student Loans
If you took out federal student loans to help finance the time you spent in college or graduate school, you know just how stressful facing significant school loan debt can be. However, it’s a fact that there are many benefits associated with guaranteed student loans. If you refinance these loans, they will become just like any other debt you carry and you’ll lose the benefits specific to the federal student loan program.

Refinancing student loans may actually cost more than simply paying back the loans the way they are written. The interest rate you are paying on your Federal school loans is likely much lower than you would be able to get on a debt consolidation loan. Additionally, with a guaranteed student loan, you’ll be able to defer loan payments if you return to school full time. You can also request a forbearance of payments if you lose your job or face another type of financial hardship. For these reasons, it’s generally best to keep student loans the way they are rather than including them in a debt consolidation program.

2. Medical Bills
The pressure of having outstanding medical bills can also be quite stressful. However, these bills represent another type of debt that is often best left separate from a debt consolidation loan. This is because medical bills aren’t likely to have any type of interest fee attached to them. If you add this type of debt to a debt consolidation loan, you’ll put yourself in the position of being required to pay interest on debt that you could otherwise make payments on without interest charges.

Use Debt Consolidation Properly
The fact that student loans and medical bills should generally not be included in a debt consolidation program does not mean that you shouldn’t pursue options to combine any other debt you have into a single payment. If you are carrying balance on revolving credit accounts and other high interest loans or indebtedness, you will likely find that debt consolidation loans can be very beneficial to you.

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