Bills can easily get out of hand. With utilities, medical bills and credit card balances piling up before your eyes, it can get hard to see straight. Before panicking too much, though, consider bill consolidation, which can make your vision somewhat clearer.
What Is Bill Consolidation?
Bill consolidation can involve one of two things: 1) a bill consolidation program, which is like a debt management program and involves counseling and negotiations, and 2) a bill consolidation loan, which is like debt consolidation in that it involves taking out a loan to pay off a group of other outstanding balances. Either way, the bill consolidation companies aim to help you, as the debtor, to pay off your balances and move toward debt reduction.
How It Works
Bill Consolidation Programs: Through a debt counseling session, consolidators will go over your outstanding bills and monthly income to help determine what you will consolidate and how much you can afford to pay monthly. The financial counselors will also discuss the possible consolidation options to help you choose a plan that's best for you.
After determining your ability to contribute, consolidators will negotiate with your creditors or collection agencies to help reduce interest rates and even waive or reduce late fees. If you have credit card accounts with balances that are included in the consolidation program, the consolidators will pay off the balances and close the accounts. As a result, you cannot use them anymore.
Once negotiations have completed, the bill consolidation company will help you to prepare a budget, which will help you to monitor and care for your financial state. Depending on what you can afford, the company will then negotiate repayment plans with your creditors.
Bill Consolidation Loans: After consulting with consolidating specialists, you can take out a personal loan to consolidate your bills. Before doing so, however, you should watch out for loan and servicing costs, which companies can use to charge you more than you already owe.
The bills covered under your loan can include credit cards, medical expenses, utility charges, store cards and personal loans. Secured debts, such as mortgages and car loans, are not eligible for coverage under a debt consolidation loan. By taking out this one loan, you do, in essence, combine all your balances into one big sum, which is the only thing you will have to repay. In other words, instead of making multiple monthly payments, you only need to pay one monthly installment.
Like with debt consolidation, there are two types of bill consolidation loans: unsecured bill consolidation loans and secured bill consolidation loans. With unsecured loans, you will have higher interest payments. This is for the company to encourage payment for debtors who do not have collateral against which they can loan you the money. Secured loans require the debtor put up some form of collateral, like a car or house, to get lower interest rates on their loan. While this is tempting, it may not be worth the risk, particularly for debtors who are in greater financial distress.
So It's Time for Bill Consolidation
Consolidation is most beneficial when it is done at the earliest signs of financial distress. This ensures that a debtor is more likely able to get out of their existing debt. The cost of debt consolidation varies, so shop around before making a decision. Many fraudulent companies will try to charge you extra fees for account management, monthly expenses and even early repayment of your loan. For this reason, you should read the fine print and, if necessary, involve a legal representative. Weigh all your options fully before choosing a path toward debt consolidation. In the end, it is about making your life easier, so make sure you can do just that.