5 Options for Consolidating Bills

By | February 19, 2013

Most Americans carry some amount of debt in the form of car loans, mortgages, home equity loans and credit card debt. While this is not necessarily a bad thing, it can sometimes become overwhelming.

When your monthly bills start to get out of control there are a number of options to help you ease your monthly financial crunch without going to the extreme of filing bankruptcy. Using alternatives such as credit counseling, debt reduction and debt consolidation can be effective tools in getting personal finances under control. The unique elements of your situation need to be considered when deciding how best to approach your financial issues because some options may have a negative effect on your credit score. It is best to choose wisely.

For many, a simple bill consolidation is a good way to get back in control of their finances. There are a number of options available for consolidating bills and these can vary depending on your credit worthiness. If you have a solid credit and income history, consolidating bills can be accomplished with no damage to your credit rating by selecting one of the following methods.

Balance Transfers

If you are carrying credit card debt with medium to high interest rates, you can apply for a balance transfer to a low or no interest introductory rate credit card offer. Occasionally credit card issuers will offer a 0% introductory rate on balance transfers. Even with balance transfer fees, this could save you a sizable amount over the first few months. When choosing this option, be sure you read the fine print to determine what fees will be charged in association with the transfer. You will also want to confirm that the post-introductory interest rate is not higher than what you are currently paying. Otherwise, you may soon end up in a worse situation than you were to begin with. Provided that the post-introductory rate offers savings over your current rates, this option may work well and offer you both fewer bills and a lower overall monthly payment.

Refinance Your Home

Home owners with good credit have an extra tool in their financial arsenal. Depending on the amount of equity you have in your home, a refinance with cash back might be your best option. This type of loan is called a cash-out refinance and if you qualify, along with paying off your high interest credit card debt, you may also be able to deduct the interest paid on your income tax return. The benefits are twofold: fewer payments and lower monthly expenses.

Personal Loans

Unsecured personal loans are a good option in some cases. It will allow you to pay off high interest credit cards and other debts, consolidating them into one monthly payment. A positive aspect of an unsecured loan is that your personal property is not used as collateral. This way, if the loan does end up in default, your personal property will not be foreclosed or repossessed. The negative of an unsecured personal loan is that the interest rates are usually higher. If this type of loan is considered, carefully examine the interest rates you will be paying in comparison with what you are currently paying. If there is less than one or two percent difference, it probably isn’t worth the effort required.

There are several other types of bill consolidation options available for those who have a less than perfect credit history. These options offer lower monthly payments overall but will have a negative impact on your credit score. They are negotiated and administered through a debt negotiation or credit counseling firm, allowing you to make a single monthly payment. The funds are paid to your creditors by the firm for you, but you will still pay off your debts, either in part or in full, depending on the type of program you choose.

Debt Settlement

Also called Debt Negotiation, this type of program allows for negotiation on your debts to reduce the total amount you will pay back and reduces the balance. While this may allow you to pay back only a portion of what you owe and avoid filing bankruptcy, it will have a negative impact on your credit history so should be carefully considered.

Be sure to research the firm you are considering to verify that they have a good history of helping others in your situation and are properly accredited, meeting all government requirements. Remember, during the debt settlement program, interest, fees and collection actions can continue but a reputable debt settlement firm will help you with these issues.

The way that a debt settlement works is that the debt counselor will negotiate with your creditors for you getting your balances reduced, then you will make payments to the firm that are held in an account until an agreement is reached. Then you pay off the debt using the funds held in the account. The process usually takes from two to four years.

Credit Counseling

Enrolling in a credit counseling program allows you to make one monthly payment and decreases your repayment time. This type of program does require 100% repayment of all debts, but the credit counselor will work with your creditors to reduce the interest rates. In a credit counseling program, you make your monthly payment to the counseling firm then they pay your creditors. Credit cards are usually closed and you will not be allowed to open any new revolving credit accounts while enrolled in the program. Most credit counseling programs take from 3 to 5 years to complete and there are fees for participation.

Deciding which option is best for you can be challenging. Enlist the help of a professional consultant. Be thorough in researching your options, then decide on your goals and when you want to reach them. This will assist the counselor in selecting the best course of action for you.

Knowing where you want to go is the first step in the journey to your financial health.

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