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Learn Which Bill Consolidation Loan is Right For You

Updated: Oct 23, 2014

Highlights

  • Consider a mortgage refinance.
  • A signature loan may consolidate your bills.
  • A 401(k) loan may be your best choice.
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Bill Consolidation Loans Can Be Expensive or Free Depending on Your Financial Situation.

If you have so many bills that you cannot keep track of them, a bill consolidation loan may help you apply more money toward your principal each month. You can watch your debt decrease in large chunks rather than slowly whittle away.

A bill consolidation loan, is just one of many debt consolidation programs available to you. You may also wish to consider:

Four Types of Debt and Bill Consolidation Loans

Depending on your financial situation, there are four types of bill and debt consolidation loans available to many consumers.

1) Home Equity Loan or Refinance

If you own a home with more than 20% equity and have good credit, apply for a home equity loan or take a cash-out refinance loan. In most cases, the interest on the loan is tax-deductible, which will save you more money. Use the proceeds of a cash-out refinance to pay off your debts. With a home equity loan, you have two bills remaining: your mortgage payment and your equity loan payment. Be careful not to create new debt that adds additional bills to your total.

2) Personal Bill or Debt Consolidation Loan

If you do not own a home, you may qualify for a personal debt consolidation loan. Some loans are secured against assets like your car, while others are unsecured. The interest is higher than a home loan, and it may be less than credit card interest. Look for a loan with no prepayment penalty so you can pay it off faster as your financial situation improves.

3) Balance Transfer Loan

If you have multiple credit cards and a few other small debts, you can use a balance transfer offer to combine all your debts onto one low-rate or zero percent interest credit card. Just make sure you can pay off that card before the low rate expires. Some cards return to a very high rate after the offer expires and you may not qualify for another offer from a different bank. When considering a balance transfer, be sure to carefully review the balance transfer fees. If they are more than 3%, look for another offer.

4) 401(k) Loan

A 401(k) loan, if allowed by the rules of your 401(k) plan, is a withdrawal from your account that you repay with a modest interest rate. The interest paid goes to your account. In other words, you pay yourself the interest. There is no tax consequence for a 401(k) loan that is repaid. The risk of a 401(k) loan is the tax penalty you must pay if something prevents you from repaying the loan as agreed. Consult with your 401(k) administrator to learn your plan's qualification rules.

Summary

If none of these options are available to you, then you need something other than a debt consolidation loan. Visit the Bills.com Debt  Coach for a no-cost, real-time, online analysis of your debt relief options.

Whichever solution you choose, you will pay much less interest than you would by keeping your current credit cards at their current rates. Saving on interest is a great way to get out of debt faster.

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