How Do I Consolidate My Bills?

With a large number of Americans struggling with credit card debts, school loans, mortgages, and a ton of other debt, finding solutions to get out of debt is critical.

Debt consolidation is a particularly effective strategy when you owe multiple creditors. It allows you to organize your debts into one account and save money on interest. It also helps simplify your monthly payments, especially since paying your bills on time is a challenge when you have different due dates.

So now you may be thinking, “How do I consolidate my bills?”

Keep reading for tips on how to get started.

Use a Balance Transfer Credit Card

A credit card balance transfer is a great option if you have several credit cards. The application process is quite straightforward, and most credit card issuers require a minimum credit score of 680 to qualify.

The main advantage of this strategy is that you can pay off your consolidated balances at 0% interest. This allows you to focus on paying off the principal amount. Balance transfer credit cards sometimes come with travel or monetary perks.

On the downside, this may not be an option for you if your credit score has been suffering due to late payments. The low-interest introductory APR of 0% usually doesn’t last more than 18 months. If you don’t pay off the principal amount within that period, the remaining balance will revert to the previous high-interest levels.

Consider a Consolidation Loan

Several online lenders, banks, and credit unions offer loans designed to combine multiple debts into one with a lower interest. This unsecured personal loan usually attracts an interest rate of 7% to 20%, depending on the loan amount, loan term, and credit score. Expect to pay interest at the higher end of the scale if you have a bad credit score.

Most lenders charge an origination fee. Banks, credit unions, and online lenders are usually selective about approving consolidation loans. They offer loan amounts of up to $50,000, with repayment terms of up to five years. The terms differ depending on the lender, so ensure you understand the terms of the loan and the potential risks of missing a payment.

It’s worth noting that the consolidation loan industry has a spotty reputation and attracts many scammers. To protect yourself, take steps to learn more about bill consolidation and how to avoid scams.

Home Equity Loan or Line of Credit

Home equity loans and home equity lines of credit allow you to borrow against your home equity or the difference between the appraised value of your home and the mortgage you owe. While home equity loans offer a lump sum at a fixed rate, home equity lines of credit offer a credit line to draw from at an affordable rate.

The beauty of home equity loans and HELOCs is that they carry lower interest rates and higher limits than consolidation loans and credit card debts. Traditional home equity loans have fixed rates and fixed monthly payments, making budgeting easier. HELOCs have a variable rate, and repayment terms range from five to thirty years. This gives you plenty of time to repay the loan.

The main disadvantage of home equity loans and HELOCs is that your house is the collateral. You could lose your house if you can’t make payments due to unemployment or other reasons. Due to the longer repayment terms, the debt may end up costing you more.

Consider a Debt Management Plan

Debt management programs are a great option if you don’t want to apply for a balance transfer credit card or borrow a loan. They are usually offered by non-profit credit counseling agencies, which assess your income and budget to determine whether you can pay off the debt in 3-5 years. They negotiate with your creditors and draft a payoff plan to get out of debt.

You close all credit cards and make a single monthly payment to the agency, which then pays your creditors. The creditors still send billing statements, allowing you to track your debt payments.

The best agencies offering debt management programs are affiliated with the Financial Counseling Association of America or the National Foundation for Credit Counseling.

The downside of this strategy is that closing your credit accounts has a negative impact on your credit score. It also doesn’t lower your balances, and you can’t take on new debt.

Final Thoughts

Taking the debt consolidation plunge is something you should do with an expert by your side. This doesn’t mean watching “How do I Consolidate My Bills?” YouTube videos. Take time to consult a financial expert or a credit counselor before deciding on any of the above solutions.