Juggling multiple bills and debts every month can be tough. If you’re looking for a way to simplify your debt and possibly save money on interest, say hello to bill consolidation.
But what exactly is bill consolidation? And how can it benefit your situation and make things easier?
Keep in mind that, when you consolidate your existing debts, your total finance charges over the life of the new loan may be higher than for your current debts, because your interest rate may be higher and/or your loan term may be longer. Here are some details to help you understand the basics and see if it’s right for you:
What is a bill consolidation loan?
Also known as debt consolidation, bill consolidation is when you pay off multiple debts with a new personal loan. For example: let’s say your debt from credit cards, household bills and medical bills totals $9,000. If you take out a bill consolidation loan for that amount, you can pay off your outstanding debt and only have the one loan to manage. You might also save money on interest if your new loan’s interest rate is lower than what you pay now. And while the debt that you paid off doesn’t go away, consolidating these bills could boost your finances in several ways.
Why should I consolidate my bills?
Some people may benefit differently than others, but when you consolidate credit card debt with a personal loan there are some common advantages of a bill consolidation loan, such as:
Fixed interest rate — Your interest rate will stay the same from your first payment to your last. This also means your amount due will be the same every month.
One monthly payment — Instead of managing multiple accounts and due dates, you have one payment due date for one account. You might also stress less about missed payments and late fees.
Fixed loan term — Whether the repayment term of your new loan is three years or five years, you’ll know exactly what day your loan will be paid in full. That’s a happy day to mark on the calendar!
How does a bill consolidation loan work?
Here’s a quick breakdown:
Apply for a bill consolidation loan — Like most other installment loans, lenders will require personal and financial information. Get these documents ready to speed up the process: proof of identity, proof of residence and proof of income.
Receive your funds — If your application gets approved, the funds will be processed and delivered according to your lender.
Pay off your debts — Once your funds become available, you or your new lender will send your creditors the funds needed to pay off the debts you selected.
Repay the bill consolidation loan — Repayment will likely begin the month after receiving your funds. Be sure to make your payments on time and in full to avoid late fees or other costly penalties.
What kinds of bills can be consolidated?
Common bills you can consolidate include credit cards, household bills and personal loans.
Certain banks, credit unions and loan companies may allow other kinds of debt, so if you have specific requests in mind, check with the lender before applying.
It’s also important to mention some lenders may only offer bill consolidation for unsecured debt. Unsecured debt is any type of debt or loan that is not backed by collateral, such as a home or vehicle. To get a deeper understanding of the two, check out the difference between a secured and unsecured loan.
Do what’s best for you
The basics of bill consolidation are straightforward — use a single personal loan to pay off multiple bills. Taking out a new loan is a big decision, but if it can help simplify your monthly payments and save money on interest, it may be a good solution for your situation.