Consolidate Debt & Credit

Bills.com Team
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Highlights


  • There are 5 main ways to consolidate debt.
  • Prioritize your goals before consolidating debt.
  • Shop around for the best debt consolidation provider before consolidating credit.
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Do You Know the Best Ways to Consolidate Debt and Credit?

Editor’s Note: There is a lot of information available on how to consolidate debt, but much of it is confusing. Bills.com cuts through the fog with simple tips and tricks you can use to consolidate debt wisely. Read on and learn how to consolidate credit.

Define Your Goals

A smart first step is for you to define your goals. You need a clear understanding of what you want to achieve and how it will benefit you, in order to make the right debt consolidation choice. Defining your goals is such a crucial part of choosing the right way to proceed with how to consolidate credit that we recommend that you read our separate article on .

In this article, however, we focus more on clearing up any confusion about your different consolidation options and their effects. If you need help with your debts, consolidating your debt may be a great solution. Many different approaches exist, to help you consolidate debt, so you need to do your homework. Only by weighing the pros and cons of each solution, can you know the best option for your situation. Think about which of the following goals is most important to you;

  1. Improve Your Cash Flow: Reducing the size of your monthly payments frees up money you can use in a variety of ways.
  2. Get Out of Debt as Fast as Possible: Becoming debt free allows you to focus on building wealth, establishing a rainy-day fund, or buying a home.
  3. Protect Your Credit: You may need to weigh if it is worth harming your credit, in order to get out of debt faster.
  4. Get Out of Debt at Lowest Total Cost: Reducing your overall costs to becoming debt free puts more money in your pocket to use for achieving other financial goals.
  5. Reduce Your Debt Stress: Stress can come from fear of missing a monthly payment, repeated collection calls, or simply by the uncertainty of having no defined plan in place. Achieving greater peace of mind may be your primary goal.

Quick tip #1:

We have screened debt relief providers who can help you consolidate debt by getting a .

1. What are Your Current Payments?

Your current payments are assumed to be the minimum amount you need to pay on each account. For credit card debts, your required minimum payment declines as your running balance decreases. Although you pay less each subsequent month, sticking to the required minimum payments .

Minimum payments on credit cards typically range between 2.5% to 4% of your balance. So, if you have a balance of $5,000, your required payment would be between $125 and $200 per month.

If you can afford to pay more each month, consider an "optimized payment" strategy that accelerates your time to get out of debt. If you cannot afford your payments, you may want to explore credit counseling or debt settlement.

2. What are Optimized Payments as a Way to Consolidate Credit?

If you can afford a significant monthly payment (much more than your minimum payments) then Bills.com recommends the method, where you maximize what you pay toward the debt with the highest interest rate to avoid paying unnecessary interest, and then roll ALL of that payment to the next highest interest rate account, and on down the line, until all of your debts are paid off.

You can also perform a similar optimized payment process using the Snowball method where you start with your smallest account first (to get a personal sense of progress, by paying accounts off and achieving your goals) and then roll ALL of that payment up to the next account, and so on. Both Avalanche and Snowball require discipline and significant free cash flow in your budget, to make any real progress in paying off your debts.

3. What is Credit Counseling?

may offer you a manageable way to becoming debt free, with minimal impact to your credit score. A debt counselor will review your financial situation. If you need outside help, for a fee the credit counselor will and create a debt management plan where you pay a single fixed monthly payment and funds are automatically distributed to your creditors. Typically, a debt management plan will provide a lower interest rate for each creditor than you are paying today and take approximately five years to complete

Quick tip #2:

Check out our . It helps you evaluate your situation and recommends a solution based on the goals you specify.

4. What is Debt Settlement?

that provides consumers with serious financial hardships a way out of debt while avoiding bankruptcy. In debt settlement, money is saved up in a protected account that stays under your control. The saved funds are used to pay off your creditors for less than you owe, after a reduced settlement is negotiated. This strategy can offer significant overall savings, a more affordable monthly payment, and a quicker way to becoming debt free, though it is not for everyone.

While your are working to build up money in your protected account, you choose to stop paying your current creditors. Consequently, debt collectors may call you, often quite aggressively, and there is a risk of legal action. Since you are missing payments, your credit score will be impaired for at least the duration of the debt settlement program, which typically runs between three and four years.

A good debt resolution firm will work hard to lessen these risks, but they are present until all your debts are settled. Debt settlement can be a great choice to resolve your debts at a low cost in a short amount of time while avoiding bankruptcy, but requires perseverance to be successful.

5. What is Cash Out Refinance Debt Consolidation?

involves taking additional cash out of your home equity to repay your debts. This is a solution that requires a new loan. Mortgage rates are still low, offering homeowners who have equity in their homes the chance to use their home to dramatically reduce monthly payments, and lower their interest rates. However, this strategy uses your home equity, putting your home at greater risk of foreclosure, if you experience debt problems in the future.

Your debt payments are also stretched across the life of the mortgage, meaning your debt is not repaid until your mortgage is paid off and your overall cost may be high.

Summary of Tips to Consolidate Debt

No matter what choice you make when deciding how to get your credit consolidated, we hope Bills.com can help point you in the right direction with sound advice and professional, pre-screened debt relief providers that have been pre-screened.

Bills.com also features many and other tools and calculators that help explain the difference between the various available.

Consolidating Student Loans

Bills.com also offers information about how to consolidate and .

4.5
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55 Comments

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  • 35x35
    Nov, 2012
    Meredith
    Thank you, some good tips on consolidating tips. The video was helpful for me.
    1 Votes

  • 35x35
    Feb, 2012
    Esther
    How to consolidate debt the best way for someone with lots of debt, no home to refinance, and bad credit? I really need to figure out how to consolidate my debts this year.
    20 Votes

  • 35x35
    Jul, 2011
    Reade
    If i consolidate debt is that the same on my credit report as filing bankruptcy?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      Bankruptcy is unique. It shows on your credit report that you filed for bankruptcy for as long as 10 years.

      Consolidating debt can be done in different ways, each with different effects on your credit. In the debt relief industry, debt consolidation can mean a loan that consolidates your debt, credit counseling, or debt settlement. To help you choose what option is best for you, use the free Bills.com Debt Coach tool.
      5 Votes

  • 35x35
    Apr, 2011
    Mark
    These guys are good, I have a link to them on my page. My tips are to just take care of the debts with the highest interest rate -- that way you can have control of which creditors actually move down and which don't.
    4 Votes

  • 35x35
    Feb, 2011
    John
    What factors would you consider if trying to decide between a cash-out refi and a 0% balance transfer offer to consolidate debt? I have about $25,000 in credit debt and my credit rating is excellent.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      I need to know more about your overall finances, before I could offer you a firm recommendation about the best way to consolidate debt.
      Here are some factors I would consider:
      • How long does the 0% interest rate remain in effect?
      • Do you think you can pay off the entire $25,000 before the 0% rate expires?
      • What is the default interest rate, if you miss a payment and the 0% interest rate goes away?
      • What is your current mortgage interest rate?
      • What interest rate are you being offered for a new mortgage?
      • Are you seeking to consolidate debt other than the $25,000 debt you mentioned?


      These are not all the questions I would consider, but it gives you a few items to chew over. I hope that this helps you in your quest to consolidate debt.
      9 Votes

  • 35x35
    Feb, 2011
    Rob
    Great video. Very informative.
    2 Votes

  • 35x35
    Feb, 2011
    Fernando
    Can debt resolution options be used if you have had a recent bankruptcy, but have incurred more credit card debt after?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Yes, there may be another debt resolution option that can help you, even if you have a recent bankruptcy. You did not specify if you filed for Chapter 7 or for Chapter 13 bankruptcy. It makes a difference what kind of bankruptcy you completed, when looking at your current options. If you have high interest rates on your credit cards, then a Credit Counseling program could be your best option, provided you can afford the program's monthly payments. You are NOT restricted from entering a credit counseling program regardless of the type of bankruptcy you filed, although you cannot be enrolled in a credit counseling program while your bankruptcy case is active.

      Debt settlement programs usually will NOT enroll a client who has had a Chapter 7 Bankruptcy discharge within the past three years. There are no restrictions on entering a debt settlement program after a Chapter 13 bankruptcy discharges.

      Aside from taking care of debt you have incurred, I recommend that you do some general financial planning. If you are incurring sizable debt after finishing a bankruptcy, then you need to adjust your spending and resource allocation. I suggest that you start making a budget.
      4 Votes

  • 35x35
    Feb, 2011
    John
    So Debt Consolidation is just a catch-all phrase. If you can't get a loan, and you don't want to go bankrupt, what debt consolidation options are available?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      There are a couple of options for debt relief, if you can't qualify for a loan to consolidate debt and you wish to avoid filing for bankruptcy.

      You should look into a debt settlement program and a credit counseling program. In a Credit Card Counseling program, your credit card issuers agree to lower your interest rate in exchange for the promise of repaying the entire balance in five years.

      In a debt settlement program, you choose to cease making monthly payments to your unsecured creditors, instead placing funds each month in a special account that stays under your control. Your settlement program negotiates reduced pay-offs with your creditors and the funds in your special purpose account are used to pay the settlements.

      I recommend that you visit the bills.com savings center. There, you can get free consultations and debt relief quotes to see what your options are and how much you could save from one of Bills.com's pre-screened debt relief providers.
      2 Votes

  • 35x35
    Feb, 2011
    Tina
    I didn't realize there were so many options to consolidate debt until reading the information on this page. And you make it easy to understand the variety options to get out of debt.
    2 Votes

  • 35x35
    Feb, 2011
    Othello
    I have been thinking about consolidating my debt but I know I don't qualify for any type of loan. I've seen ads on TV that claim in some cases it is possible to cut a person's debt by 50%. Is this true? If so, what are some of the things I should be looking for when speaking with a Debt Specialist to insure that I am speaking with a professional and not being scammed? Love the website and thanks for all of the great information.
    2 Votes

    • 35x35
      Feb, 2011
      Bill
      Yes, it is common for debt settlement companies to negotiate deals with credit card issuers for half the outstanding balance. However, some creditors in some situations drive hard bargains and 60 cents on the dollar is the best deal possible. In other situations, the creditor is happy to get 40 cents on the dollar, so 50 cents on the dollar is an accurate average based on historical data.

      Regarding your question about finding an effective debt settlement company, I have two suggestions. First, see the Bills.com resource Reputable Debt Settlement, which discusses what to look for when choosing a debt settlement provider. Second, complete the Bills.com debt relief consultation form to receive a no-cost, no-obligation consultation with a pre-screened Bills.com partner that is appropriate for your level of debt in your state of residence.
      1 Votes

  • 35x35
    Feb, 2011
    Kasey
    Great video and helpful info, but if I have to consolidate debt then what is the best debt consolidation choice?
    1 Votes

    • 35x35
      Feb, 2011
      Bill
      There is no one-size-fits-all debt solution. Which debt consolidation option is right for you depends on your goals and your current finances. I suggest you read the bills.com white paper on debt and post any follow up questions there.
      0 Votes

  • 35x35
    Feb, 2011
    Nichole
    Very informative! I will definitely recommend Bills.com to all of my friends and family.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Great question! Bills.com can help you find a debt relief provider. Click on the hyperlink I just mentioned to be connected to a pre-screened debt settlement partner who can give you a no-cost, no-obligation consultation tailored to your circumstances.
      0 Votes

  • 35x35
    Feb, 2011
    Julie
    What a great website. Very insightful. I now have a website to refer my friends to in helping them get out of debt.
    0 Votes

  • 35x35
    Feb, 2011
    John
    If I can't manage my debts, chapter 7 bankruptcy is better than trying to consolidate debt isn't it? How do I qualify?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Better means different things to different people. Filing bankruptcy is a drastic step, and you should explore your alternatives before fixating on this option. On the positive side of the equation, if the debtor qualifies for Chapter 7 bankruptcy, the time to debt freedom is relatively fast. The negatives are significant, and include the debtor possibly losing expensive assets that are liquidated in the process; a significant decrease in their credit score; and their financial information becoming public information.

      See the Bills.com whitepaper Debt Relief Options to read a comparison of popular debt resolution options, including debt resolution, credit card counseling, and bankruptcy.
      0 Votes

  • 35x35
    Feb, 2011
    Benjamin
    It's tough to know when to consolidate debt and when you can just pay each account down with a plan... this is a nice guide to the options out there. Thanks for posting.
    0 Votes

  • 35x35
    Feb, 2011
    Jon
    It's great to know that folks with bad credit can still consolidate debt. Instead of just moving debt around from one account to another, we can get on the path to actually reducing our debt and working towards becoming debt free.
    0 Votes

  • 35x35
    Feb, 2011
    Noah
    Very helpful article. I ended up with a debt consolidation loan, and my monthly payment is lower and more convenient than the bunch of bills I had previously.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      It is important for anyone that consolidates debt to be mindful of not running up new debt. If you haven't done so already, I suggest you start keeping a budget, so you can most effectively manage your finances.
      0 Votes

  • 35x35
    Feb, 2011
    James
    I've been looking for help with my debt, but haven't been sure what to do. At least this gives me a better idea of what's out there.
    0 Votes

  • 35x35
    Feb, 2011
    Jeff
    Glad I found your site. I have some close friends trying to figure out how to consolidate their debt and I'm sending them your way. Thanks Bills!
    0 Votes

  • 35x35
    Feb, 2011
    Tudor
    Great insight into ways to consolidate debt.
    0 Votes

  • 35x35
    Feb, 2011
    Drew
    Great page and great info. Thanks.
    0 Votes

  • 35x35
    Feb, 2011
    Ken
    I'm looking to refinance my condo in CA in June. Can you tell me what it means when a loan has "recourse?"
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Certainly. Let us assume for the sake of argument you buy real property, a vehicle, or some other item with a loan that is secured by the land, the vehicle, or item in question. Let us say the sale price is $10,000, and the amount of the loan is also $10,000. Then let us say two bad things happen right after you sign the loan documents: the land, vehicle, or item drops in value by more than half to $4,000; and you lose your job making it impossible for you to make your loan payments. The lender forecloses or, in the case of the vehicle or other item, repossesses the vehicle or item. There is an auction, and the lender sells its security for $4,000. You owe the $6,000 deficiency balance personally. When you stopped (or never started) paying the lender, it had the right to seize the security and collect any deficiency balance from you. In other words, it had recourse against you personally.

      Some states are called no-recourse states. This refers to state laws that outlaw mortgage lenders from collecting deficiency balances from borrowers. These states are known as no-recourse states. A synonymous term is anti-deficiency. California and Arizona are two no-recourse/anti-deficiency states. However, no two no-recourse/anti-deficiency states share the same rules. Consult with an attorney experienced in property law if you face foreclosure and live in a no-recourse/anti-deficiency state to learn how your state's laws apply to your situation.

      Regarding recourse and refinancing in California, if your present loan was the original loan you used to finance the purchase of your condo, then you are almost certainly protected by California's anti-deficiency rules. However, refinancing removes the anti-deficiency protection. In other words, your original loan is no-recourse, but any refinance is a recourse loan.
      1 Votes

  • 35x35
    Feb, 2011
    Soundarya
    Thank you very much for all the great and relevant information on how to consolidate debt and to overcome all debt hurdles in a fast and easy way. Great Site!!
    0 Votes

  • 35x35
    Feb, 2011
    Cramer
    One stop shop for financial analysis. Credit cards, mortgage, tax, money management... A Financial Network of honest, caring consultants that help you keep your money in your pocket!
    0 Votes

  • 35x35
    Feb, 2011
    Jeff
    This is the best site I've found for info on how to consolidate debt. Thank you for all the great info.
    0 Votes

  • 35x35
    Feb, 2011
    Gary
    I am so confused about which way to go with handling my debt. Should I consolidate or resolve my debt? Help
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Gary, I don't know enough about your specific situation to know what is causing your confusion or what solution will best solve your problems. As I just wrote to another reader, I suggest that you start by working on making a budget. Analyzing your income and expenses may allow you to find ways to more effectively use your resources to accomplish your goals. You can also call one of my Money Coaches, to discuss your financial situation at 888-849-0170.
      0 Votes

  • 35x35
    Feb, 2011
    Daniel
    Freedom Debt Relief can help in may ways. Please contact me directly for any assistance
    0 Votes

  • 35x35
    Feb, 2011
    Ken
    This website is a great way to find out what your options are when you want to consolidate debt.
    0 Votes

  • 35x35
    Feb, 2011
    Sammy
    This is a good start to help me consider my options to consolidate debt. Do you provide another tool on your site that makes it easier to compare these different debt consolidation offers, based on my actual situation, i.e. how much debt I have, the monthly payments I can afford to make, my goals, etc? Thanks.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      I suggest that you start by working on making a budget,. Analyzing your income and expenses may allow you to find ways to more effectively use your resources to accomplish your goals. You can also call one of my Money Coaches, to discuss your financial situation at 888-849-0170.
      0 Votes

  • 35x35
    Feb, 2011
    Jamar
    I want to clean up my credit but my schedule is so full I barley have time to sleep to make it through the day. How can i consolidate debt in a way that will help someone like me who's almost never home?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      First, understand your debt resolution options. There is no one-size-fits-all solution that meets the goals of all consumers. Just as there is no perfect vehicle that meets every household's needs to a T, each debt resolution solution has pros and cons. Click on the hyperlink I just mentioned to read a Bills.com whitepaper that describes your options, and the costs and benefits of each. Second, complete this form and a pre-screened Bills.com debt settlement partner will contact you to discuss your options. There is no cost or obligation for this service. Finally, understand that you are not alone, and you have the opportunity to live debt free.
      0 Votes

  • 35x35
    Feb, 2011
    Jeremy
    This website is a great resource to learn how to consolidate debt and free yourself from the debt burden. It looks like y'all put a lot of time into this helpful website and it shows. Thank you very much
    0 Votes

  • 35x35
    Feb, 2011
    Tim
    I'm confused when it comes to getting the best deal to consolidate debt. I have several credit cards, the rates are more than 10% each. I thought I could go to my bank and get a loan to pay them all off, but I've been turned down by Wells Fargo to consolidate debt. Do you think a credit union debt consolidation loan can help me? Also note, my credit score is imperfect, I had 3 short sales on investment properties in the last 2 years. Any suggestions???
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      You are asking me to speak for a credit union, which I cannot. Different lenders have different underwriting criteria, so if you were a borderline candidate at Bank A, then Bank B or Credit Union C might say yes. On the other hand, if your credit rating is poor, your income history is uneven, and your debt-to-income ratio is high, no one but a payday lender will touch you, and I do not recommend payday lenders under any circumstances. My recommendations? First, try, try again. Second, consider your other debt resolution options.
      0 Votes

  • 35x35
    Jan, 2011
    Chris
    This is great info. Guess its time for me to consolidate debts now that the bills are rolling in and can't possibly pay the ridiculous interest charges anymore.
    1 Votes

  • 35x35
    Jan, 2011
    Barbara
    These are great tips. I certainly need to consolidate debt now that the holiday bills are coming, or I will not be able to pay. Do you recommend a provider, or do you do the debt consolidation work yourself? I want a vetted provider so that I get a good company.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      I recommend that you visit the bills.com savings center. There, you can get free consultations and debt relief quotes to see what your options are and how much you could save from one of Bills.com's pre-screened debt providers.
      5 Votes

  • 35x35
    Jan, 2011
    Sarah
    If I cannot even afford to make the minimum monthly payments on my credit card debt, what is the best way for me to consolidate debt since I don't want to have to file bankruptcy?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Any approach available to consolidate debt is going to require a monthly payment. If you are not able to make a large enough payment, then the consolidation program is not going to succeed. Depending on how much debt you have, what your income and living expenses are, and what assets you have. there may be no better option for you than filing for bankruptcy, even if it is something you wish to avoid. I recommend that you look at every available approach, to see which one is best for you. Speak to a Consumer Credit Counseling service, a Debt Settlement company, and a Bankruptcy attorney, unless you have an asset you can liquidate or borrow against that gives you enough funds to pay off your debt. Also, I suggest that you review an industry leading debt white-paper in which we compare the actual cost, monthly payments, time to debt freedom, and success rates of the main debt relief options.
      3 Votes

  • 35x35
    Dec, 2010
    Bob
    Thanks for the info, but should I consolidate debt or should i refinance to do some sort of debt consolidation loan? Those are different right?
    2 Votes

    • 35x35
      Dec, 2010
      Bill
      "Consolidate debt" is an umbrella term that means different things to different people. Here are four definitions:
      1. Debt Consolidation Loan: Take several debts such as separate credit card accounts, and refinance them as one debt. Customarily, debt consolidation loans have a long term, which lowers the monthly payment. Debt consolidation loans have a high cost.
      2. Mortgage Refinance: If you have equity in your home, a cash-out mortgage refinance gives you access to money to retire other debt, remodel your home, pay for college, and so on. A cash-out refinance burdens your home with debt, and if your refinance results in higher payments that you cannot afford in the future, you risk foreclosure.
      3. Credit Card Counseling: Your credit card issuers agree to lower your interest rate in exchange for the promise of repaying the entire balance in five years.
      4. Debt Settlement or Debt Resolution: Ceasing monthly payments to unsecured creditors and instead placing the monthly payments in a special account. After six months to three years of saving, make lump-sum settlements with the creditors for less than the stated balance.

      All of the above can be considered a form of debt consolidation. To learn more about the costs of these and other options, read the Bills.com resource Debt Relief Options: Which is Right for You?

      14 Votes

    • 35x35
      Feb, 2011
      Sahar
      Hi Bob, just wanted to let you know that most banks now-a-days do not allow revolving accounts to be paid off with a cash-out refinance. Not all but most. However, installments are allowed. Debt consolidation would probably work best for you. Good Luck!
      3 Votes

    • 35x35
      Feb, 2011
      Bill
      Banks actually prefer cash disbursements from a refinance go to pay off revolving debt, improving the borrower's financial picture and thus, the borrower's ability to repay the loan.
      1 Votes