It can be hard to keep track of due dates for bills. The difficulty increases the more payments you have to make. In an age where nearly everyone has multiple student loans, credit cards, and other payments to track, it can be a nightmare to make sure you’ve got the cash on hand to pay your bills.
This situation has a greater impact than you might suspect. Multiple due dates can make it hard to create a predictable budget, undermining your ability to plan your finances. When you can’t plan your finances, it becomes even harder to keep track of your bills. This creates a situation where you are more likely to miss your bills or be late on them, incurring additional fees. These fees also interfere with your ability to plan your finances, creating a vicious cycle.
Oftentimes, consumers feel that the only solution to this situation is to make more money. However, this can be difficult to do in the current economy. Moreover, you usually have to spend money to make money, so your ability to plan is thrown off even more.
There is a solution though, and that’s bill consolidation. We’ll look at some different options for bill consolidation to help you understand the choices you have. The goal is to help you simplify your financial life and help you get out of debt faster.
What is Bill Consolidation?
Bill consolidation is a fairly broad term, and it can encompass many different things. We’ll look at two different types of consolidation, consolidation by shifting your debt, and consolidation through credit counseling.
The difference between these two types of consolidation is fairly simple. When you consolidate by shifting your debt, you put all your debt into one place and pay off the numerous individual creditors you currently have. This reduces the number of payments you have to make and keep track of, which simplifies your financial planning. Moreover, shifting your debt can have positive impacts on your credit score, and can help make your debt cheaper month-to-month and over the course of your repayment.
Bill consolidation through credit counseling involves hiring an outside firm to track your bills and distribute your funds to the appropriate parties. You don’t take out another loan or credit card with this option. Instead you pay a company a reasonable fee to track your bills, and you pay them a flat monthly amount equal to your bills, which they then allocate to your creditors.
Can I benefit from Bill Consolidation?
Most people stand to benefit from bill consolidation. Shifting your debt can help improve your credit score a few different ways. First, it changes the amount of revolving credit that you are using. Credit utilization is a major factor in determining your credit score, so shifting your revolving debt into installment debt can give your score a good boost.
Additionally, bill consolidation by shifting your debt can result in lower interest rates. This allows more of your payment to go to the balance of your debt, helping you pay it off faster. A lower interest rate also reduces your monthly payments, which can free up money to help make ends meet, set aside for a rainy day, or to put into your debt to pay it off even faster.
Even if you decide to do bill consolidation through credit counseling, you can still reap substantial benefits. Simplifying your bill paying process allows you to create and stick to a budget. This can help you start saving, and helps prevent you from missing payments which add to your debts.
Bill Consolidation through Home Equity
One option for shifting your debt is to consolidate your bills into a home equity loan or home equity line of credit. These financial products are commonly referred to as a second mortgage. You borrow against the equity you have in your house, and use the money you get to pay down your current outstanding debts. After this happens you’re left with one payment to make on the home equity loan or line of credit, and your other debts are paid off.
However, in order to access these products, you must own a home. Moreover, you must have equity in the home. Therefore, this option isn’t available to renters or individuals who have less than 20% equity from their mortgage.
Bill Consolidation through Balance Transfer Cards
Another popular option for consolidating bills is to use a balance transfer card. Balance transfer cards are specialized credit cards that offer fewer perks but a lower interest rate than other cards. They work by transferring the balance from your current cards to the new balance transfer card, and then paying it off. These types of cards frequently offer 0% APR for an introductory period of time, allowing you an opportunity to rapidly pay off the principal without having to worry about interest accruing.
However, not everyone can qualify for a balance transfer card, and there are some kinds of debts that you can’t resolve with a balance transfer card. Therefore, it’s important that you talk to a qualified credit specialist to understand what your options are.
Bill Consolidation Through a Loan
The last type of consolidation through shifting that we’ll discuss is a consolidation loan. A consolidation loan is a good option for many consumers. You take out a loan for the payoff amount of your current debts. Your new lender then pays your debts off for you, and gives you a loan at a lower interest rate than you had previously. This saves you money on your monthly bill and simplifies the payment.
Some consumers might not qualify for consolidation loans if their credit score is bad, and others might be hesitant to take on a new kind of debt, so, once again, it’s important to discuss this solution with a qualified professional before making any decisions.
Bill Consolidation through Credit Counseling
The final option is bill consolidation through credit counseling. This option gives you the simplicity of bill consolidation without having to apply for a new financial product. Most companies charge between $25-50 per month to track and pay your bills (in addition to the cost of the bills, of course). Unlike the other consolidation solutions we discussed, there are few, if any, qualifications when it comes to bill consolidation through credit counseling, making it an option for the greatest number of consumers.