With the recent economic downturn many people have had to adjust their budgets to account for these tougher times. One area that is of particular concern is credit card debt and other short-term loans with high interest rates. These loans can be a financial drain on your budget and some consumers are looking for ways to reduce or even eliminate these debts. One way to address these credit cards and other loans is through bill consolidation.
With bill consolidation you secure a single loan that will allow you to pay off all or most of your other short-term loans and have one payment each month to make. Even though this type of approach may not be right for every person, or every loan, it can be a great way of lowering your debt quickly and will help you quickly consolidate bills.
The biggest advantage of bill consolidation loans may be the interest rate. Many times a consumer receives a credit card at a low introductory rate that will revert to a higher rate over time. If instead of paying off the credit card each month the card owner decides to carry a balance on the card the monthly payment may increase significantly over time. By obtaining a loan to consolidate bills you should be able to negotiate a lower interest rate on this new loan and lower your monthly payment as a result. The reason for this is that credit cards and other unsecured debt is usually approved at a higher interest rates since the lender has no collateral for the loan and it will be harder for them to recover their money if you default on the loan. Many bill consolidation loans are offered as secured loans which means you’ll offer some collateral to secure them. This type of loan is usually granted at a much lower interest rate than your current debt and can help you reduce your monthly obligations as a result.
Another advantage of using one of these bill consolidation loans to settle some of your short-term debt is that it will usually be a fixed-rate loan. Unlike credit cards and some other short-term loans that fluctuate throughout the year, these bill consolidation loans will be the same interest rate for the life of the loan. Your older loans with a variable interest rate can really cause havoc with a budget since you will have to adjust your payment to accommodate this changing rate. Many consumers get into trouble by not planning for this adjustment in the payment and may miss a payment, which drives the rate even higher. They may have been fine making the payments required when the interest rates on this credit card debt was lower, but fell behind when it was raised. A debt consolidation loan can help with this by keeping your payment consistent each month for the loan. This can help you budget better and will also allow you to accelerate payment of your debt by now being able to send more than the minimum payment for the loan each month as part of your bill consolidation plan.
Many people are not as well organized as they need to be, and trying to keep track of several individual payments each month can be a little overwhelming. As a result they may make a few of their credit card payments a day or two late by losing track of payment dates. This has a snowball effect as creditors will usually raise the interest rates on these loans because of this missed payment, which compounds the problem by raising the monthly payment as well. By securing a single loan to consolidate bills, you can eliminate the confusion of keeping track of all of the various payments due on your current loans and will have one easy payment each month to keep track of.
There are several ways to apply for these bill consolidation loans and which one you select depends on your financial situation. Many banks can offer both a collateralized and non-collateralized loan that can be used for debt consolidation. The interest rate will usually be higher on the non-collateralized loan so be sure to ask if you qualify for both of them to pick the best one for your needs. A second good option for many consumers is a home equity line of credit or HELOC as they are commonly known. These loans are based on the value of your home and the amount of funds available depends on how much your home is worth compared to what you still owe on it. Many homeowners find these home equity loans to be the perfect funding source for helping them reduce their short-term debt. The key with this type of loan is that you can spread the payments out over a longer period of time and lower your monthly payment as a result. You still have the option of paying off the loan early if you can afford to make more than your monthly payment as well.
Another option that some consumers choose is to speak with a credit-counseling agency to help them consolidate bills that they have. These agencies are skilled at looking at your entire financial picture and helping you pick the best option for reducing your debt. By having all of your monthly bills available for them to review, they can suggest the least expensive way to help you eliminate this debt. In some cases they can negotiate with your creditors for you and reduce the amount of this debt by offering them a one-time payment for your outstanding balance. Some credit card companies are willing to do this if you have been late on a few payments in the past. Most of these credit-counseling agencies will even arrange for a loan to help you make this one-time payment to your creditors as part of your bill consolidation plan. You can then pay this new loan each month with a single and smaller monthly payment to the agency.
Whichever path you decide to follow in your bill consolidation efforts, be sure you understand the details of any program or loan you are considering. Finding the right plan for you can save you a lot of money each month and help you pay off your loans quicker as well.