Reasons To Consolidate

Stop Collection Calls
Lower Monthly Bills
Free Credit Counselors
Repair Your Credit
Get Out of Debt For Good
Foreclosure Facts
Loan Modification
Debt Elimination
Debt Settlement
Debt Negotiation
Personal Debt Freedom
Debt Management Plans
Debt Consolidation Guide
5 Steps To Debt Relief
Types of Debt Relief
Tips To Reduce Debt
Understanding Tax Debt
Payday Loan Relief
Debt Negotiation Letter
Debt Verification Letter
Credit Card Help
Credit Card Rules Changes
Store Credit Cards
Fix Credit Card Debt
Debt Consolidation Loans
How Debt Consolidation Affects Credit
Free Bill Consolidation?
Reduce Your Debt
The Debt Snowball
Financial Planners
Medical Debt Guide
Seniors in Debt
How to Keep Your Job
What if You Don't Pay Bills
Wage Garnishment
Mortgage Hardship Letter
Get Out of Debt
Bad Credit Personal Loan
Life After Bankruptcy


What is Bill Consolidation?

In its simplest sense, bill consolidation involves taking out one large loan to pay a number of smaller, usually high interest, loans. As a concept, it is valuable for several reasons:
  1. It allows a debtor to put all debt into one loan, usually with a smaller monthly payment than he/she had with all of the separate loans/debts.
  2. Most of the time, the interest rate on the new loan is less than the average interest rate of the old loans/debts.
  3. There is a convenience and peace of mind in knowing that only one payment needs to be made to cover the multiple former debts.
  4. The debtor usually feels much less stress and tension than before, when he/she was trying to figure out which loans to pay during which pay period and juggling minimum payments to a variety of creditors, all with different due dates.

Types of Bill Consolidation

There are different methods available for bill consolidation. Certainly, the most attractive method is to borrow from a relative who may charge little to no interest. Unfortunately, most people do not have that "rich uncle" waiting in the wings to perform the rescue, and more traditional methods must be used for debt consolidation.
  1. For those people with collateral (usually equity in a home), a home equity loan may seem to be the best answer. With this method, the debtor takes out a loan on his/her home and has regular monthly payments until the total loan is paid off. Interest rates on these loans are usually adjustable and relatively attractive, provided the debtor has a good credit score. For those without a good credit score, however, they are unavailable. In addition, the home equity loan is placed on the title of the property and, should the debtor fail to pay this loan back, the property is in jeopardy of being taken. Anyone who considers a home equity loan must be able to "bite the bullet" of no more credit purchases, commit to living completely within his/her means from now on (and this includes minimal shopping for holidays!), and be willing to establish a budget within which he/she will definitely live until this equity loan is paid off. Nothing can be quite as frightening as to know that your house is "on the line".
  2. An unsecured loan to consolidate one's bills is probably the least used. For one thing, the borrower must have really good credit to qualify. Most people who have gotten themselves in too deep do not have the credit score to get an unsecured loan, and the interest rates are generally higher than a loan secured by collateral. However, if credit is excellent and the borrower is ready to "bite the bullet" of no additional debt acquisition, these can be an answer. Interest rates are usually higher than a home equity loan but lower than the credit card rates.
  3. Again, people with good credit are often offered "zero interest" introductory rates on other credit cards and can transfer high interest debt to these cards. This can be a good avenue for debtors who are really vigilant. The introductory rates expire, and then the debt is charged with the "going" interest rate, and that can be quite hefty. Before anyone considers this method, he/she must commit to being careful about watching for the end of the introductory rate, in the hopes that another credit card company will offer a "zero interest" rate, to which the balance may be transferred. The other thing about these constant switches is that they can and do affect one's credit score. Taking out too many new credit cards within a short period of time can cause a score to drop significantly. And, if the debtor keeps the old credit cards, with the higher interest rates, the temptation is always there to use them on impulse buying.
  4. The third and frequently used method is to contact a bill consolidation professional who can take all of the debtor's information and debt and develop a plan to pay it off in a comfortable way. The debt consolidator may set up a new loan, at a lower average interest rate, reducing all debt to one more comfortable monthly payment and, in addition, may negotiate with current creditors to reduce the total debt amount, allowing a debtor to get out of debt sooner. Again, personal responsibility is required. The debtor must be willing to cut up any credit cards included in the bill consolidation loan, perhaps maintaining any that are at low interest or have zero balances - to be used in emergencies only, please! Anyone who is inexperienced in negotiation with creditors or who is just too embarrassed or stressed to tackle this often complex task on his/her own, is wise to use a professional, provided the terms of the contract/agreement are appropriate. People don't work for free, and the debt consolidator has to pay his bills too! There will be a fee for this service, paid by addition to your overall payments or by the creditors with whom the consolidator is working. Either way, the bill consolidator gets paid too.


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