What Is Bill Consolidation?
When a person transfers their outstanding debts and loan payments into one bill, this process is called bill consolidation. On paper it sounds simpler than it really is. Remember that bill consolidation requires a loan. You don’t just pile all your debts into one payment and send a check and that’s that. You have to be approved for bill consolidation loans. But bill consolidation is just what the name says — combining your bills into one easy to manage payment.
Why Use Bill Consolidation Services?
Theoretically your consolidation loan will decrease the amount of interest and fees you pay on your debts. There are other benefits to using bill consolidation services (such as allowing for one simple payment rather than a dozen little ones), but the big benefit to taking out a bill consolidation loan is the lower interest rate you’ll get. It means you’ll pay off your debt much quicker than using traditional methods.
Take note of the fact that you’ll have to make regular monthly payments to your bill consolidation company, including any fees they tack on. Depending on the company, these fees can be anything from reasonable to outlandish. The credit card or bill consolidation company takes your money and pays off your various debts themselves — they make their money by securing ultra-low interest rates and having some of your debt lopped off by your debtor, then pocketing the difference between your payment and they payments they make. That’s why you have to be religious about paying them — they’re paying for you and without your payment they’re losing money.
It is common to find a bill consolidation company that doesn’t charge monthly fees. Sounds nice until you realize that they make their money on huge upfront fees — sometimes thousands of dollars — and you’ll end up paying the same either way. You see fewer and fewer bill consolidation companies using the “upfront” method these days, maybe because it makes more financial sense for these companies to get a little money out of you over an extended period of time. Whatever the reason, monthly fees are now the norm.
One slight downside to bill consolidation loans — your debtors may report your loan to credit reporting agencies and this could keep you from opening new bank accounts or credit cards. The good news is that after 6 months or so of regular payments, you can start to take on new debt or open a new bank account.
Another point — some debt can’t be consolidated. Student loans, mortgage payments, and even some high-balance credit card debt is impossible to consolidate.
How Do I Find a Bill Consolidation Company?
Bill consolidation companies (or “debt management companies”) are professionals who negotiate with your debtors to reduce your interest rate. That’s all they do. Don’t get sucked in to doing business with a bill consolidation company that has little or no experience — there’s just too many talented debt management companies to waste time on some low-rent bill consolidator.
When you look for a bill consolidation company, stick with a company that works exclusively with debt management concerns. Companies with a wider scope of interest may not be as interested in easing your debt as they are interested in taking your cash. One tip when signing on with a company — ask for a specific date when your accounts will be paid in full. A good consolidation company will be able to give you a date when each of your accounts will be paid off and you will be debt free.
For more information related to bill consolidation and credit card consolidation, see the following:
- How to Consolidate Student Loans
- How to Repair Your Credit Rating
- What Is a Secured Loan?
- How to Get Out of Debt
- How to Declare Bankruptcy
- How to Avoid Bankruptcy
- Government Debt Consolidation Loans