If you have a pile of bills that need to be handled every month, it may feel like your paycheck disappears the moment you get paid. High interest rate bills and additional fees can definitely cause added financial strain on you and your family. If this is the case, a bill consolidation loan, also known as a debt consolidation loan, could prove invaluable.
What is a Bill Consolidation Loan?
Although frequently referred to as a debt consolidation loan, a bill consolidation loan can help pay off wide-reaching debts. These consolidation loans will help you bring down monthly expenditures to a manageable level, simplify the number of bills needing to be paid each month, and potentially save you and your family money.
Debts such as unpaid medical expenses, utility costs, car repairs, and back taxes, among others, often overwhelm families. Add in a personal loan, auto loan, and credit card debt, and one can easily see how people become overwhelmed with outstanding debt. Paying down balances that keep adding monthly interest and fees can test income limits. This is why people sometimes find themselves in financial trouble due to mounting bills with the possibility of bankruptcy looming.
Bill consolidation loan and debt consolidation loan solutions are often found in the form of home equity loans, personal loans, and low rate credit cards. Borrowers apply for a loan product with an interest rate lower than what they're currently paying. While the debt doesn't disappear, the funds from the bill consolidation loan often reduce the amount of interest and fees paid each month. It also frees up money to enjoy life while driving down old balances. By securing a bill consolidation loan, outstanding debts can be brought into one manageable monthly installment, delivering financial and emotional relief to borrowers.
What Types of Bills Can Be Consolidated?
It’s essential to understand that lenders offer a variety of bill consolidation loans and debt consolidation loan options such as home equity loans, personal loans, low rate credit cards that include managing different types of debt. Some provide relief for wide-reaching types of unsecured debt. Here are just a few examples of outstanding balances that can be consolidated.
- Credit Card Balances
- Store Credit Cards
- Home Improvement Loans
- Automobile Repair Debts
- Outstanding Medical Bills
- Electric, Gas, Oil, Water, and Other Utility Bills
- Civil Lawsuit Judgments
- Phone, Internet, and Cable Bills
- Back Taxes
Credit unions tend to provide significant flexibility regarding the use of bill consolidation loan funds. Installment loans for boats, equipment, and other debt that weigh families down may be considered reasonable consolidation targets.
Reveal tips to get out of debt fast while exposing unrealistic expectations by downloading our guide:
Why Should I Consider a Bill Consolidation Loan?
When the amount of outgoing revenue begins to strain monthly income, people would be well-served to consider all their options and take prompt steps to address the issue. Those who delay taking proactive measures are one setback away from some of the least favorable solutions.
These may involve negotiating with creditors to reduce overdue payments and interest charges. The unpleasant discussions may also include asking credit card companies and others to eliminate fees that have accumulated. For those who wait too long, getting blindsided by illness, injury, or job loss could plunge them into bankruptcy.
While bankruptcy may wipe out significant debt, it leaves people with damaged credit scores and disqualifies them from meaningful borrowing opportunities for years. Fortunately, taking out a bill consolidation loan is a proactive and positive solution that provides the following benefits.
One Monthly Payment
It’s not uncommon for people with hectic lifestyles to inadvertently miss a bill payment. Such errors trigger late fees and other charges. Late or missed payments are also reported to the three major credit bureaus — Equifax, Experian, and TransUnion. People can anticipate their FICO scores to take a hit as a result, reducing borrowing power. Paying off multiple debts with a bill consolidation loan allows people to make one monthly installment. This helps stay on top of debt reduction.
Lower Interest Rate
One of the reasons that multiple monthly bills get out of control is because of high interest rates. High interest rates compound the issue if only minimum payments are being made each month. Mix that with a fee for an accidental missed payment and the debt keeps growing. Finding a home equity loan, personal loan, or low rate credit card with a lower rate can often save extra money and ease current financial burdens or be placed towards existing debt.
Improve Credit Score
It may seem counterintuitive but taking out a bill consolidation loan generally increases credit scores. Although a lender does make a hard credit history pull that initially causes a slight dip, FICO scores bounce back quickly. Once the outstanding debts are paid off and the zero balances are reported, credit scores usually tick up.
Even though borrowers simply moved the debt into a single loan, they may also have increased their credit utilization bandwidth. For example, paying off several credit card balances is a good move, but be sure to keep the credit card account active. Canceling a credit card shrinks the amount of available funds to use, and it may negatively impact one's credit score.
Achieve Financial Freedom
After paying the rent or mortgage, utilities, credit cards, and the interest and fees associated with overdue balances, little money is left. When savvy financial planners use a bill consolidation loan to get out of debt, once the bills are paid off and brought under one umbrella, people can enjoy the monthly surplus. Those additional resources can be used for fun, or they can be used to reduce the loan’s principal, shortening the time it takes to become debt-free.
Improved Quality of Life
Sometimes people lose track of the fact that money is a tool that provides access and opportunities to leisure items and activities. Doling out hard-earned income to creditors inhibits the ability to purchase new clothes, enjoy dining at favorite restaurants, pay for a family vacation, or remodel the kitchen or bathroom.
While paying bills is important, so is everyone's quality-of-life experience. Taking out a bill consolidation loan may allow for spending a little more on the niceties that add joy.
How a Bill Consolidation Loan Works
Applying for a bill consolidation loan is a relatively straightforward process. It begins by contacting a local lender to ask what documents are needed to process the home equity loan, personal loan, or low rate credit card. Once you apply and you have been approved, here is what you can expect.
- Funds are deposited into a bank account or sent directly to creditors.
- Pay off remaining debts consistent with the loan terms.
- Begin making monthly installments on the bill consolidation loan.
Lastly, make the most of the benefits that may include extra cash for leisure enjoyment, saving money, or paying down the principal to gain financial freedom.
Peach State Offers Bill Consolidation Loans
If you're feeling the strain of multiple monthly payments and are ready to consolidate your debt, contact Peach State to get started! Our Home Equity Loans, Personal Loans, and low rate Credit Cards may be just the solution your finances can benefit from.
For more tips on how a bill consolidation loan or debt consolidation loan can help you get out of debt, review our Debt Consolidation: Expectations vs Reality Guide.
