Debt can be broken down into secured debts, unsecured debts and government debts, such as taxes, government loans and court-ordered debts. Almost all privately offered debt consolidation services focus on unsecured debts only, such as credit cards, monthly bills and educational loans. Under certain circumstances, the Internal Revenue Service (IRS) allows you to consolidate separate tax bills into one loan. It is possible to consolidate secured debts into one loan, but this normally requires pledging additional or replacement collateral.

Perhaps the most common form of debt consolidation involves student loans. As the costs of higher education rise, students are turning to more government and private loans to finance their tuition. It is not uncommon for a student to graduate from a four-year program with more than a dozen different student loans, each with different interest rates, loan balances, grace periods and repayment lengths. Depending on the types of student loans, borrowers can choose between direct consolidation loans through the U.S. Department of Education or private consolidation loans through major financial institutions.

Lesser-known are consolidation loans for those with major tax bills. According to the IRS, the tax collection agency will "generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time." The IRS is like any other creditor in the sense that it is always looking for strategies to maximize its accounts receivables.

Companies that offer private consolidation loans are likely to allow unsecured loans to be lumped together, even when the debts are dissimilar. For example, you might be able to combine your credit card debt, department store credit debt, utility bills, medical bills, unsecured personal loans, select student loans and debts owed to collection agencies, all in one consolidation loan. Even if the underlying debts are all unsecured, it is possible to secure a consolidation loan with some of your assets – such as your home, car, retirement accounts or insurance policy – for lower rates or higher balances.

It is harder to get approved for a consolidation loan that includes secured debts. Companies that are willing to offer such loans normally require new collateral. They either arrange to have your collateral evaluated by an appraiser or require that you do the same before the loan is approved.

The advantages of consolidation loans can be significant. You can simplify your debts into a consistent monthly payment, reduce your monthly payments and possibly lock in a lower interest rate. However, you sometimes end up paying more in interest through the consolidation loan than you would have with your separate loans. You could hurt your credit score if you use your consolidation loan to replace long-standing debts with consistent payment histories.

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