- 9 min read
- Bill consolidation simplifies your payment schedule, can save money or lower your monthly payment
- A bill consolidation loan is an attractive way to consolidate your debt, especially if you have good credit.
- There are other bill consolidation alternatives including balance transfers, debt management plans, and debt settlement.
Bill consolidation is possible!
If you have multiple credit card debt, medical bills, or other unsecured debt, bill consolidation can help. Sometimes, either through habit or a lack of better options, you run up credit card debt, which becomes unmanageable or expensive.
Contrary to what you might have read, there are different ways to consolidate your debt.
Learn more about:
- What is bill consolidation?
- Why consider bill consolidation.
- How to find a bill consolidation loan.
- Explore bill consolidation options.
- Bill consolidation tips and your credit.
What is bill consolidation?
Bill consolidation combines a number of your bills and personal debts into one payment. You can consolidate debt such as credit cards, medical bills, and certain household expenses into one payment. The most common way to consolidate your bills is through a debt consolidation loan.
The most common way to consolidate your bills is through a debt consolidation loan. However, other ways to consolidate bills include using a balance transfer, home equity mortgage, debt management plan, or debt settlement.
Why consolidate your bills?
Bill Consolidation is a good option if you have high-interest credit cards, and you can qualify for a consolidation loan that lowers your rate and saves you money. If you are struggling to pay all your bills, a cash-out refinance, or home equity mortgage can consolidate debt and reduce your monthly costs.
Bill consolidation simplifies your life. Here are three solid reasons to consider consolidating your debt:
Simplify your payments: You make one monthly payment instead of sending out multiple ones, all with different due dates. One charge is easier to manage and reduces the chances you will forget to pay and suffer a late fee.
Lower your interest rates: Reducing your interest rate is another reason to consolidate your bills. If you have strong credit, see if you qualify for a low-interest bill consolidation loan that saves you money.
Reduce your monthly payment. If you need payment relief, then consolidating debt in a long-term mortgage will lower your monthly costs.
Bill consolidation loans: finding a low-interest loan
The most common type of a bill consolidation loan is a personal unsecured loan, also known as a debt consolidation loan.
Some lenders offer better terms if they know that you are paying off credit card debt, medical bills, and other household bills. In general, the better your credit score, the lower your interest rate.
The bill consolidation loan allows you to make one monthly payment and get out of debt between 2-5 years.
Can you save money with a bill consolidation loan?
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 three debts (credit card and other bills) amounting to $25,000, and your average interest rate is 19%. If you continue to make the same monthly payment instead of decreasing minimum payments, then you will pay off the loan in about 99 months. Your total scheduled interest payments would be about $24,900.
However, if you qualify for a low-interest debt consolidation loan, you could save thousands of dollars. By consolidating your $25,000 into a 5-year loan at a 7.5% interest rate, your monthly payment would still be $500, and you would save over $19,000 (not including an origination fee).
Four top debt consolidation lenders
Here are four top personal loan lenders who offer low-interest rates for borrowers with high credit scores:
SoFi targets personal loan borrowers with good income and strong credit and offers larger amounts. SoFi personal loans range from $5,000 to $100,000. Their APR ranges from m 5.99% APR to 18.83% APR (with AutoPay). Repayment terms are between 3-7 years.
LightStream offers personal loans to borrowers with excellent credit scores and a proven credit history that demonstrates timely payments. LightStream offers attractive interest rates to its well-qualified borrowers. Loan amounts range from $5,000 to $100,000. Interest rates range from 5.95% APR to 19.99% APR. The time you choose to repay the loan is from 2 years to 7 years, though some loans come with shorter maximum repayment terms.
Marcus is a personal loan lender owned by Goldman Sachs, who specializes in good credit borrowers. Borrowers must have a Credit score of 660 or higher. Marcus offers loans ranging from $3,500 - $40,000. Rates range from 6.99% to 19.99% APR, and loan terms range from 36 to 72 months. https://www.bills.com/personal-loans/marcus-personal-loans
Prosper is a leading personal loan lender. Prosper uses a different approach to offering personal loans, called peer-to-peer lending. They use an online platform to match borrowers seeking personal loans at attractive rates with individual investors looking for a good return on their money. Prosper offers bill consolidation loans from $2,000 to $40,000. Rates range from 6.95% to 35.99% APR and repayment terms between 3 years or 5 years
Learn how to consolidate bills in five steps
To consolidate your debt and bills, follow these five steps:
1- Take stock of your bills and debt: Do you know how much you owe, your interest rates, and your monthly payments? Start by getting a free copy of your credit report. Check to see if you have other bills or debts that don’t show up on your credit card.
2- Evaluate your budget: The key to making bill consolidation work is to create affordable monthly payments. You need to know your stable monthly income, your spending habits, and then calculate how much money you have available to pay each down your debt. To keep tabs on your bills, make sure to create and maintain a budget.
3- Check your assets: Take an inventory of your significant assets, including home, savings accounts, retirement funds, and investment accounts. Perhaps you have assets you can use to pay off some of your bills?
4- Check your credit score: Check your credit score through an online site that tracks your credit, your credit card statement, or even better with a lender. If you have excellent credit, then you can qualify for low-interest bill consolidation loans. A bill consolidation loan can help you improve your credit score. However, if you have bad credit, then consider bad credit debt consolidation options.
5- Choose a bill consolidation solution: You are now ready to find a personalized bill consolidation solution. The most common bill consolidation tactics for people with excellent credit are a personal loan, cash-out, or home equity mortgage. However, there are debt consolidation options for people with varying degrees of hardship, including credit counseling, a debt management program, debt settlement, and bankruptcy.
Bill consolidation solutions
Besides a bill consolidation loan, there are other debt consolidation solutions.
Balance Transfer: If you have excellent credit and less than $15,000, consider a credit card balance transfer. Consolidating your bills with a credit card balance transfer is an attractive solution if you can repay all or a significant part of the debt during the introductory period.
Personal Loan: Consolidating bills with excellent credit is the most popular solution. However, a personal loan with fair to good credit might still be affordable and save you money.
Cash-out or Home equity mortgage: If you need a lower monthly payment and have sufficient equity in your home, consider a home equity mortgage. You benefit from a low-interest rate and a more extended payoff schedule. Take into consideration that a debt consolidation mortgage might end up costing you more over the long-run.
However, if you are struggling with debt and various bills, then most likely, your credit is hurt, and you are looking for a way to lower your monthly payments. Fortunately, several bill consolidation solutions address varying degrees of hardship, from mild to very hard, a debt management program, debt settlement, and bankruptcy.
Debt management plan: If you are suffering a mild hardship, then a debt management program (DMP) offers you the chance to consolidate all of your credit card bills into one monthly payment. First, a credit counselor helps you to set a household budget and understand your financial capabilities. If appropriate, you can enroll in a debt management plan with creditors to set up interest rate concessions and fee waivers to pay off the entire enrolled debt balances over 60 payments.
Debt settlement: Debt settlement is a bill consolidation program for households suffering from significant hardship. In a debt settlement program, you stop making your monthly payments on your enrolled accounts. Instead, you make one monthly payment to a designated account. As the balance in this account grows in size, the debt settlement program provider negotiates with your creditors. Over time, the debt settlement program provider will negotiate settlements for a fraction of the original balance. The debt reduction amount depends on the size of the balance, the creditors' policies, and other circumstances.
Bankruptcy: Bankruptcy is intended to help people in severe hardship. While Chapter 7 bankruptcy wipes out all of your debt, it is tough to qualify. However, a court-approved Chapter 13 bankruptcy creates one payment for your unsecured debt, usually over five years. Your monthly payment amount will be based on your monthly disposable income, as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state law.
Bill consolidation tips based on your credit
Here are a few tips for seeking a bill consolidation solution based on your credit score:
Excellent Credit: Balance transfers (for credit card debt up to $15,000) and personal loans are two bill consolidation solutions that allow you to quickly pay off your debt and save money.
Good - Excellent Credit: If you need a lower monthly payment and have built up equity in your home, consider a cash-out of home equity mortgage. You can consolidate your bills into a low-interest loan at a lower monthly payment. Take into consideration that you are transferring unsecured debt to secured debt, and you might be increasing the amount of time to get out of debt.
Good Credit: If your credit is good, you might qualify for a personal loan, but the interest rates may be high. If so, then look at a debt management plan that can consolidate your monthly credit card bills at a lower rate.
Poor - Fair Credit: Most likely, you are struggling. A low credit score is usually a sign of financial distress. If you are having trouble making payments, then consider a debt settlement program. Depending on your overall financial situation, you might want to consider bankruptcy. While there are bad credit debt consolidation loans, those usually come at a very high price. Be especially careful of short-term (payday) solutions. Those are quite often a debt trap.
Comparing bill consolidation solutions:
Personal loan vs Debt Management plan vs Debt Settlement
|Personal Loan||Debt Settlement||Debt Management Plan|
|Minimum Debt||Loans between $1 - 100K||$7500+ in Unsecured Debt||$2500+ in Unsecured Debt|
|Credit Score||✕ High-interest rates for bad credit loans||✓ No credit requirements||✓ No credit requirements|
|Debt Principal Reduction||✕ Pay principal and interest||✓ Principal reduction negotiated||✕ Pay principal and interest|
|Monthly Debt Payment Impact||✕ Payments increase||✓ Payment reduce||✓ Some payment reduction|
|Credit Score Impact||✓ Positive||✕ Negative||✕ Moderate negative|
|Avoid Collection Calls||✓||✕ Special programs to deal with collectors||✓|
|Avoid Possibility of Litigation||✓||✕||✓|
|Keep Using Credit Cards||✓||✕||✕|
|Typical Program Length||24-60 months||24-60 months||24-60 months|
Did you know?
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Pennsylvania, 19% have student loan debt. Of those holding student loan debt, 7% are in default. Auto/retail loan delinquency rate is 3%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.