Bill Consolidation: What Are Your Options?

By | March 4, 2013

The reason why bill consolidation enjoys popularity among most people laden with piling bills is the ease of paying back all outstanding and current bills, without having to deal with gross imbalances between their income and expenditure.

Bill consolidation can be done in a number of ways, and while it can be an excellent solution if you are looking for a way out, it is important that you consider the advantages and disadvantages behind them.

Here is a list of the different ways in which you can consolidate your bills:

Credit Card Debt Consolidation

Advantage: When dealing with payments on your credit cards, it is easier to consolidate all your payments into one single card. Another reason why this is an easy solution is because Credit cards require no collateral and can be obtained easily. When choosing a credit card, try applying for those that can wave the interest payment for the first year ensuring that all your payments are directed towards your debt payment only.

Disadvantage: Most credit cards come with an interest rate of 10 to 12 percent after the first year and from now on a large part of your payment will be in the form of interest. Failing to make a payment on time, will lead to late fee charges which will only add to your debt. In the instance you fail on two payments, your credit scores are reduced and the interest rates are increased.

Debt Consolidation Mortgage Loan: Home Equity Loans

Advantage: A house of your own is good collateral when you want to borrow money. The best part is that the interest rates are highly reduced when compared to the interest rates of a credit card.

Disadvantage: Any failure on payments can result in you loosing your home.

Debt Consolidation Mortgage Loan: Home Refinance Loans

Advantage: A home refinance loan works by utilizing the equity on your home to pay off your bills. Just don’t jump at the first offer that comes your way. Shop around to find an offer that is the most suitable to your needs.

Disadvantage: Whenever you go in for a home refinance loan, be sure to be clear on things such as setup fee or points as these can differ from the actual advertisement. Try to get a loan within the equity on your home as opposed to a loan which maybe more than the price of the house, least you owe more than the price of the house. The best option would be to go in for a long term payment plan when considering this option.

Debt Management Counseling

Advantage: Debt management companies or institutions work by offering you a financial plan that has been discussed and negotiated and approved by your creditors which normally a reduction in the interest rate. The greatest advantage of using this option is that you can be assured of clearing your debts in shorter time.

Disadvantage: Since you are legally responsible any non or late payment on your bills will affect your credit ratings and make you liable for any additional fees.

Retirement Loans

Advantage: Having a 401(k), 403(b) or company pension plan, makes you eligible to borrow from your retirement funds. The interest rates are usually low and there are no pre-qualification processes or credit checks.

Disadvantage: Withdrawing your retirement loans comes with a 10% penalty, this in addition to paying taxes. The biggest drawback with this option is that if you leave or lose your job, you may have to payback your retirement loan immediately.

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