Learn how to consolidate bills effectively, no matter what your current debt status is. Even the bleakest situation can be resolved.
How Much Debt is Too Much?
The best test of excessive debt is the level of anxiety and stress it causes. If each monthly bill pay time becomes an event of worry, then it is time to look at your overall financial picture with an eye toward reducing and ultimately eliminating debt. If you are already at a point at which you cannot meet your monthly debt, then the need is immediate, and you must determine how to consolidate bills effectively.
Methods of Consolidation
Depending upon individual circumstances there are a variety of methods for consolidating bills.
- If payments have been made in a timely fashion, your options are more pleasant. Homeowners should consider an equity line of credit or a cashout re-finance of an existing mortgage, in order to pay off all “bad” debt and begin anew. This option works when there is enough equity in the home to access, and, as well, the interest rate will generally be lower than any other type of debt consolidation loan.
- Non-homeowners who have made timely payments should consider a personal loan for debt consolidation. If credit is good, a bank or credit union may offer a loan at a more reasonable rate than typical bill consolidation lenders. The key will be to get a payment that is lower than the total payments on the current debt being consolidated.
- Credit card rotation is another measure that has been used successfully when there is a commitment to future responsible spending. An individual who has relatively good credit may get offers in the mail for new credit cards at 0% or very low initial interest rates. Transferring balances from high interest credit cards to this new lower one can assist in paying the debt off more rapidly if good self-discipline is used. When the introductory period is over, the balance can be transferred to another offer, and so on. The danger in all of this is that a consumer can end up with many cards in his wallet, all of which are tempting to use if self control is lacking.
- Bill consolidation professionals and companies offer services to debtors that include negotiation with current creditors for a lower payoff balance, securing a bill consolidation loan with an affordable monthly payment, and, if truly ethical, assistance with budget development and credit counseling to avoid future recurrence. If this option is selected, the wise consumer will do plenty of research and secure the services of an individual or company that has an outstanding reputation.
- Chapter 13 Bankruptcy is a drastic but sometimes necessary option. Under this plan, all debt is consolidated by the Bankruptcy Court, and the debtor agrees to a 3-5 year payment plan with an overall reduction in total debt. Monthly payments are made to an attorney appointed by the Court and distributed to creditors accordingly. The debtor needs to understand that no new credit will be granted until this obligation is paid in full, and, as well, the credit report will be affected for many years to come.