Types of bill consolidation
Given below are the 2 ways by which you can consolidate bills.
•Bill consolidation program: This is similar to a debt consolidation program wherein you take help from a consolidation company. The company negotiates with your creditors for a reduction in your interest rates so that you can pay down the debt comfortably. In return, the company will charge you a certain amount of fee.
If you have dues on credit cards, medical bills, and student loans, they can be paid off through the consolidation program. Other debts consolidated by the program are utility bill payments, store cards, personal loans etc. Secured debts such as mortgage or car loan cannot be included in the program. The bill consolidation program also helps to reduce or eliminate late payment charges through negotiation with creditors.
How bill consolidation program works
Take a look at the 5 steps in a consolidation program.
1.Debt counseling: The bill consolidation company will assess your financial needs through a free debt counseling session. The debt counselor will ask for details of your outstanding bills and monthly income and help you find out how much you can pay monthly. The counselor will discuss the possible options for bill consolidation and help you choose the best.
2.Negotiation: The consolidation company will negotiate with your creditors in order to reduce the interest rates at which you need to pay off bills. They may ask your creditors to waive off or reduce late fee amount. If you have taken out credit cards, the consolidation company will have all card accounts closed. That is, you cannot use them any more.
3.Prepare a budget: The company will assist you in preparing a budget based upon your current financial situation. This will help you figure out how much you can afford to pay each month on your bills.
4.Repayment plan: Depending upon how much you can afford, the company will negotiate a repayment plan with the creditors/CAs.
5.Monthly payment: Start making monthly payment to the consolidation company. The company then distributes the payment among your creditors/CAs.
•Bill consolidation loans: These are personal loans taken out for bill consolidation. Bill consolidation loans are available at a rate usually lower than the average interest rate at which you're supposed to pay off bills. Thus, you can repay all your bills using a single loan. So, instead of multiple bills, you need to make a single payment each month in order to repay the consolidation loan. However, watch out for the loan costs when you go for it.
Bill consolidation laws to protect debtors
Bill consolidation laws are enacted in order to protect debtors from being harassed by creditors or collection agencies. These laws govern the practices of creditors and CAs. The provisions of bill consolidation laws are included in the Fair Debt Collection Practices Act (FDCPA).
Bill consolidation laws such as the FDCPA impose limitations on practices of CAs so that the debtor receives fair treatment and is given a fair opportunity to pay off his debt and improve his financial situation.
How to benefit from bill consolidation
Bill consolidation or debt consolidation program helps you to repay debt through lower monthly payments (due to reduced rate of interest). You get a restructured payment plan as per your affordability. The best thing is that you need to make one payment only and can avoid dealing with several creditors at a time. For further details, look through the 8 benefits of debt consolidation.
In case you go for bill consolidation loans, you can still get the benefit of a lower rate and monthly payment. Bill consolidation loans have a long repayment period. When there's an extended loan term, it does help in reducing monthly payments. But the debtor ends up paying more of the monthly payments in the long run. So, bill consolidation loans may give you instant relief from multiple bills but the total interest paid over the repayment period can offset any short term savings.
The purpose of bill consolidation is to help you pay off debts through lower interest costs and improve your credit score. However, if you'd like to reduce your debt amount and not the interest costs, you may try out debt settlement. Whichever option you choose, make sure you don't take out new credit/loans as any additional debt can affect your payment in bill consolidation/settlement
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