If your bills feel unmanageable, you aren’t alone. Recent reports found that 30% of people are less able to afford bills today than they were a year ago. If you’re facing job loss, medical bills, or some other curveball, bill consolidation may be worth considering.
Here’s what you should know about the process, including how it works, when it’s a good idea, and the various options available.
What Is Bill Consolidation and How Does It Work?
Bill consolidation is a way to reorganize your debt. You work with a provider to combine multiple bills into one payment that’s easier to manage. Instead of tracking several due dates and minimum payments, you get to focus on one.
Many people turn to bill consolidation programs for reasons like medical debt, job loss, rising living costs, or family emergencies.
Bill consolidation could be a good option to explore if:
- You’re overwhelmed by different due dates.
- You struggle to keep track of payments.
- You want a clearer picture of what you owe.
Bill consolidation generally doesn’t reduce the overall amount of debt you owe, but it can help simplify your finances. By streamlining payments, many people find it easier to get back on track.
5 Bill Consolidation Options to Consider
There are several ways to consolidate bills, each with their own pros and cons. Here’s how some of the most common options work.
1. Debt Consolidation Loan
A debt consolidation loan is a personal loan used to pay off multiple existing debts, leaving you with just one monthly payment. Depending on your credit score and loan offer, this can increase your interest rate or overall finance charges.
2. 0% APR Balance Transfer Credit Card
A balance transfer credit card allows you to move balances from one credit card to another, usually for a fee. The 0% APR versions provide an introductory period during which interest doesn’t accrue on the transferred balance, often between six and 21 months.
This can lead to significant savings, especially if you have multiple credit cards. However, interest will resume after the period ends, and some cards may even charge retroactive interest, though it’s not typical.
3. Home Equity Loan
A home equity loan allows homeowners to borrow against the value they’ve built in their home and use that money to pay off debts. You receive the funds as a lump sum, then repay the loan over time. The main risk is that if you fail to repay the loan, your home could be in jeopardy.
4. Credit Counseling
Credit counseling is a service typically offered by nonprofit organizations. A certified credit counselor reviews your income, expenses, and debts, then helps you develop a financial plan. This doesn’t necessarily change how you repay your debts, but it can offer guidance and education.
5. Debt Management Plans
A debt management plan (DMP) is a structured program offered through credit counseling agencies. If a counselor determines it may be appropriate, they can help enroll you in a plan.
With a DMP, you make one monthly payment to the credit counseling organization. They distribute that payment to your creditors, often after negotiating lower interest rates or waived fees.
A DMP isn’t a loan and doesn’t reduce your principal balance. Debt management plans just offer more structure and ongoing support than credit counseling alone, which may be helpful if you’re struggling to manage multiple bills.
Move Forward With Confidence
Bill consolidation can be a great option when juggling payments becomes overwhelming. It comes in many forms, ranging from balance transfer cards to debt management plans. Each option has unique risks and benefits, so do your due diligence before committing.
