Low-Interest Bill Consolidation Loans

Bill Consolidation Loans - Low Interest and Affordable Payments

Bills can pile up. For some of us, it can quickly reach an unmanageable point. Sometimes the easiest way to pay our bills is to use our credit cards. If the amount you charge on your cards is more than you are paying, your balances can become enormous before you know it. If your cards carry high interest, too, it can be tough to dig yourself of out the hole.

There are various ways to get out of debt. One popular method is a bill consolidation loan. While low-interest personal debt consolidation loans are available, you will need excellent credit to get the best rates. Another popular solution is a cash-out refinance or a home equity loan, which is possible to obtain with a less than stellar credit score and offers low-interest rates and low monthly payments.

Low-Interest Bill Consolidation Loan

The most common type of a bill consolidation loan is a personal unsecured loan. In general, the better your credit score, the lower your interest rate. Bill consolidation personal loans are paid off between 2-5 years. If you qualify for the best terms, then you can save a lot of money. You might even be able to combine those savings with a lower payment.

Here is an easy example to show you how much savings you can get in a low-interest bill consolidation loan. Let’s say that you have $25,000 in credit card and other bills and your average interest rate is 19%. Your monthly minimum payment would be about $500, or 2% of your debt. If you decide to continue to make the same monthly payment instead of decreasing minimum payments, then you will pay off the loan in about 67 months, and your total scheduled interest payments would be about $7,382.

However, if you qualify for a low-interest loan, you could save thousands of dollars. By consolidating your $25,000 into one monthly payment, your savings (not including any origination fees would be):

• $6,157 on a 3-year loan at a 6% interest rate. Your monthly payment would increase to about $728.
• $3,925 on a 5-year loan at a 10% interest rate. Your monthly payment would drop about $25 to $475.

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Other Types of Bill Consolidation Loans

Besides unsecured personal loans there exist different types of bill consolidation loans. The two most common are cash-out refinance loans and home equity loans (or home equity lines of credit). Other possibilities include a balance transfer loan or a 401-K loan.

The main advantage of a mortgage loan is that you can get lower interest rates and a longer payment term, which translates into an affordable monthly payment.

Cash-Out Refinance vs. Home Equity Bill Consolidation Loan

If you have built up equity in your home, then you can consider refinancing your mortgage.

In general, lenders will allow you to take out cash in your home up to 80% of the value of your home. For example, if you have a home worth $300,000 and your current mortgage is $200,000, then you can take out an additional $40,000 to pay off your bills. (80% of $300,000 = $240,000).

It is possible to take out a mortgage for as long as 30-years, or if you can pay more, then consider a 15-year mortgage at lower interest rates. The main advantage of a cash-out mortgage is lower interest rates, or for some borrowers the reduction in monthly payments. The main disadvantage is high closing costs. It is essential to consider the overall benefits from the lower interest rate, lower monthly payment and the amount of time you hold on to the mortgage loan.

A home-equity bill consolidation loan allows you to hold on to the original mortgage. The home equity loan (HEL) or home equity line of credit (HELOC) creates one additional mortgage loan that allows you to pay off your bills. The main advantage of this loan, assuming that your interest rate is attractive and your monthly payments are affordable, is that you pay much less in closing costs.

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 into 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.

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.

Low-interest Bill Consolidation Loan Alternatives

Are personal unsecured or mortgage bill consolidation loans the best alternative for all households? The obvious answer is no. If you don’t have good enough credit to qualify for attractive rates, enough equity in your home to take out a mortgage, or are in financial hardship and can’t afford the monthly payments; then a bill consolidation loan is not a good solution.

Fortunately, there are other debt relief solutions such as credit counseling, debt settlement, and bankruptcy that allow you to find an affordable monthly payment and reduce your debt.

Check out Bills.com innovative Debt Navigator to find the best solution to your debt problems.