Definitions for debt relief products often are less than precise and vary widely depending on individual usage, and “bill consolidation” is no exception. Most literally, however, bill consolidation refers to combining many bills into one. Probably the most common way to do this is through a bill consolidation loan.
Bill Consolidation Loans
Bill consolidation loans, also known as debt consolidation loans, are provided to consumers by a number of different sources including banks and credit unions.
Such loans are used to pay off other loans, so that the individual then has only one debt to pay each month instead of having to balance multiple payments. Generally only unsecured loans are eligible for consolidation, or those loans that are not attached to property as security for payment should you fail to repay.
In addition to simplifying one’s finances significantly, consolidating your bills into one also may result in a lower interest rate. Thus, you may be able to make smaller monthly payments, or alternatively may be able to pay off your debt sooner than you would have been able to otherwise.
Bill consolidation loans may be either secured or unsecured. Secured loans like home equity loans or home equity lines of credit require that you put up a piece of property as collateral (usually a home). Unsecured loans like personal loans, on the other hand, require no such action. Consequently, secured loans are much easier to obtain unless you have excellent credit and a rather small debt load.
Depending on your specific situation, you might be interested in consolidating student loans. Student consolidation loans generally are unsecured, so many students find that the benefits of consolidating outweigh the costs. Both federal loans and private loans may be consolidated, but they cannot be consolidated together.
Bill consolidation loans can be very useful for people feeling overwhelmed by their finances, but they are not for everybody. If your debt is such that you realistically are unable to pay it off, for example, then you may want to expand the definition of “bill consolidation” to encompass other alternatives in addition to debt consolidation loans.
Bill Consolidation Companies
For debtors who realistically are unable to pay their debts, working with a bill consolidation company (debt consolidation company) might be a good “consolidation” choice. Enrolling in a program at such a company generally requires that you make only one payment per month instead of many, just like if you obtained a bill consolidation loan.
Upon enrollment with a debt consolidation company, an agent will begin to negotiate with your creditors to “settle” for an amount that is less than the full amount of your debt. Meanwhile, your monthly payments will be kept in a “settlement” account instead of going directly to your creditors.
Once your account grows to the amount agreed upon with a particular creditor, then that creditor is paid off and that account is considered paid in-full. The process then continues with your other creditors.
More information about Bill Consolidation Companies.
For individuals who are feeling overwhelmed or confused by their finances but are not sure where to turn, credit counseling often is a good option. While taking such action generally does not combine your debts into one and therefore may not be exactly what comes to mind when you think of “consolidation”, it can be invaluable.
It is similar to working with a bill consolidation company, but in addition to coming up with a solution for your immediate problem, a credit counselor will take the time to educate you and give advice on financial planning. In fact, any counselor who does show interest in your unique situation or who tries to push you into a single course of action is not doing his or her job.
If you are not sure exactly what type of bill consolidation is right for you, then credit counseling may be a good place of departure.
More information about Credit Counseling.