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If you've fallen behind on your bills and cannot manage them properly, bill consolidation may be your right choice. Bill consolidation is a way through which you can pay off bills by taking advantage of reduced interest rates and fewer monthly payments. Attending a no-obligation free counseling session with a debt relief company will enable you to understand whether you should consolidate bills or look for some other options. Take a look at the topics given below to know what bill consolidation is all about.
How to pay off bills - 2 Types of bill consolidation
Find out how to pay off bills using any of the 2 types of bill consolidation as given below. Then decide upon what is the best way to consolidate bills.
Bill consolidation program: This is similar to a debt consolidation program where you get help from a consolidation company. These companies offer bill consolidation services or program to you. If you have credit cards, medical bills, utility bills, store cards or personal loans, they can be paid off through a bill consolidation program. Secured debts such as mortgage or car loan cannot be included in the program.
How bill consolidation program works
Take a look at the 5 steps in a consolidation program.
Debt counseling: The bill consolidation companies will assess your financial needs through a free debt counseling session. The debt counselors will ask for details of your outstanding bills and monthly income and help you find out how much you can pay monthly. The counselors will discuss the possible options for bill consolidation and help to choose the one that's best for you.
Negotiation: The bill consolidation companies will negotiate with your creditors or collection agency (CA) in order to reduce interest rates. They may ask your creditors/CA to waive off or reduce late fee. If you have taken out credit cards, the consolidation companies will have all the card accounts closed. So, you cannot use the cards any more.
Prepare a budget: The bill consolidation companies will assist you in preparing a budget based upon your current financial situation. This will help you figure out how much you can afford to pay each month on your bills.
Repayment plan: Depending upon how much you can afford, the companies offering bill consolidation services or program will negotiate a repayment plan with the creditors/CAs.
Monthly payment: Start making monthly payment to the bill consolidation company. The company then distributes the payment among your creditors/CAs. However, the company will charge a certain fee for their bill consolidation services from you. So, you should keep aside certain amount for paying the fees.
For example: You have taken out 3 credit cards from a company at the interest rates 15%, 20%, and 25%. The total outstanding balance is = $35000.
This means the average interest rate is (15%+20%+25%)/3 = 20
After enrolling into a credit card bill consolidation program, the counselor will negotiate with your creditors and cut back the interest rates on each credit card.
So, if the interest rates on the 3 credit cards are reduced to 10%,15%, 20% respectively, then the average rate will be - (10%+15%+20%)/3 = 15%
The total amount of money you can save through credit card bill consolidation program = (20% - 15%) * 35000 = $1750 per month.
However, after enrolling into a credit card bill consolidation program, you have to make the payments on time, or the interest rates may increase again.
Bill consolidation loans: These are personal loans taken out for bill consolidation. Such loans are available at a rate usually lower than the average interest rate at which you're supposed to pay off bills. Thus, you can repay debt with one big loan. Instead of making multiple payments, you need to pay a single installment each month to repay the bill consolidation loan. However, watch out for the loan costs when you go for it.
How to decide what is the best way to consolidate bills
If you're concerned about the best way to consolidate bills, then you need to compare the types of bill consolidation. The consolidation program will no doubt take less time to get you out of debt, as compared to a bill consolidation loan, which is usually available for a long term.
If you're not comfortable taking out a long term loan, then going for the bill consolidation program would be a better option. But if you think managing a long term loan isn't a problem for you, then you may choose the bill consolidation loan. While you compare the 2 options to find out what is the best way to consolidate bills, watch out for the monthly payment and fees required in each case. This will help you to decide whether a bill consolidation program or loan is the best option for you.
Bill Consolidation laws to protect consumers
Most of the laws that regulate bill consolidation loans focus on regulating the financial institutions that provide the consolidation loan.
All nationally chartered banks, and a few state chartered banks, are required to be insured by the Federal Deposit Insurance Corporation. The FDIC is a US government corporation created in 1933, in order to protect consumers from the problems created by the bank failures in 1929. The FDIC protects consumer deposits, examines financial institutions for safety and financial health, and performs certain functions to protect consumers.
Other than the protections provided by the FDIC, the Fair Lending Act and the Truth in Lending Act protect consumers by ensuring that all the terms of the loan are provided to the consumer when they take out the loan.
The amount of interest a lending institution can charge their customers and other terms of the loan are governed by the law of the state where the customer lives.
Therefore, it is important that when you are contemplating taking out a consolidation loan, you make sure that the institution you are borrowing from is insured and follows the applicable state and federal law. The best way to find a loan that you can afford and can be sure of is to talk to the lender in person.
How bill consolidation can help you
Bill consolidation or debt consolidation program helps you to consolidate bills and make lower monthly payments (due to reduced rate of interest) thereby reducing stress. You get a restructured payment plan as per your affordability. The best thing is that you need to make only one payment each month. Thus, you can avoid dealing with several creditors at a time. For further details, look through the 8 benefits of debt consolidation.
If you go for bill consolidation loans, you get the benefit of a lower rate and monthly payment. Bill consolidation loans have a long repayment period (or loan term). When there's an extended loan term, it does help in reducing monthly payments. But the debtor ends up paying more in interest for the entire loan term. So, bill consolidation loans may give you instant relief from multiple bills but the total interest paid over the repayment period can offset any short term savings.
The purpose of bill consolidation is to help you pay off debts through lower interest costs and improve your credit score. However, if you'd like to reduce your debt amount and not the interest costs, you may try out debt settlement. Whichever option you choose, make sure you don't take out new credit/loans as any additional debt can affect your payment in bill consolidation or settlement.
I was just wondering how it is working out for anyone in a bill consolidation program now.I know the consultation is free,but what is the average cost once you sign the contract?
How much is the small fee that bill consolidation companies charge? What are the average monthly payments including fees? I'm still not sure if I want to go that route yet. My main worry is the time frame that it takes to begin. I have never defaulted on a loan and do not think I can handle the harassing phone calls,but its getting harder and harder to pay these bills.
I guess I just feel that I got myself into this mess and now I must get myself out.Its not the payday loan companies that did this to me,I did it to myself. :oops:
"No amount of time can erase the memory of a good cat, and no amount of masking tape can ever totally remove his fur from your couch." Leo Dworken
By signing up for counseling session, your provided details (Name, Email ID and Phone No.) will be forwarded to the company advertising on the DebtCC. However, you have no obligation to use their services.
Some creditors and collection agencies refuse to lower the pay off amount, interest rate, and fees owed by the consumer.
Creditors/collection agencies can make collection calls and file lawsuits against the consumers represented by the debt relief companies.
Debt relief services may have a negative impact on the consumer's creditworthiness and his overall debt amount may increase due to the accumulation of extra fees.
The amount which the consumer saves with the use of debt relief services can be regarded as taxable income.