What Is Bill Consolidation?

Adult life comes with its fair share of bills. Between everyday expenses and debts, you could find yourself paying a dozen bills—or more—every month. That can seriously test your organization skills, especially when those payments all have different due dates.

Enter bill consolidation. When you consolidate bills, you reorganize them to simplify your payments. And if you consolidate your debt, you could potentially get a lower interest rate or monthly payment.

Whether you’re dealing with debt or just a large stack of bills, consolidation can provide financial relief. Understanding how it works can help you decide if this option is right for you.

What Is Bill Consolidation?

Bill consolidation is a process in which you combine multiple bills into one. The most common type of bill consolidation is debt consolidation, also known as loan consolidation.

With debt consolidation, you take out a consolidation loan and use the money to pay off multiple debts. You then make just one payment each month to the lender of your debt consolidation loan.

If you want to consolidate everyday bills, you can bundle them. Some service providers have bundle packages available. For example, an internet provider may also offer streaming services and wireless phone service. If you sign up for a bundle, you could get three services in one. Bundle packages often include a discount, so you’d pay less than you would pay for each service separately.

What about bills without a bundle package available? Some third-party services could bundle your bills for you as a concierge service. These services typically charge a fee, so the convenience comes at a cost. 

How debt consolidation loans work

The kind of debts you can pay off through debt consolidation include:

• High-interest credit card balances

• Medical bills

• Unsecured loans or lines of credit

• Vehicle loans

• Federal and state tax debts

Loans for debt consolidation aren't meant to pay off government-backed student loans. Student loan borrowers can look into federal debt relief programs or private refinance loans to manage those obligations.

The interest rate for a bill consolidation loan can be fixed or variable. Your interest rate depends on your credit history, income, loan amount, and how aggressively you shop for the best bill consolidation loan. 

Remember that bill consolidation isn't the same as debt settlement. Debt settlement involves negotiating agreements with your creditors to pay less than what's owed. You may negotiate yourself or work with a professional debt settlement company to reach an agreement on a settlement amount.

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Pros of Bill Consolidation

Bill consolidation could make sense when you need help handling your debt or want to have fewer bill payments. If you're considering bill consolidation, here's a closer look at the advantages and drawbacks.

• Streamline monthly payments. You have fewer accounts to pay after bill consolidation, which could make it easier to stay on top of your payments. Reducing the risk of late payments helps you avoid late fees and protect your credit standing. 

• Save on interest. If you’re consolidating debt, you can look for a loan with a lower interest rate than what you’re currently paying. A low rate could save you money on debt repayment over the life of the loan, especially if you consolidate expensive credit card debt.

• Get more manageable payments. Debt consolidation loans usually offer a variety of repayment terms. You may be able to get a longer loan if you want a lower monthly payment. Word to the wise: A longer repayment term typically means you pay more interest overall.

• Boost your credit score. A debt consolidation loan could raise your credit score. Your credit scores are affected by the amount of credit card debt you have. When you shift debt balances from credit cards to an installment loan, that could have a positive effect on your credit. 

Cons of Bill Consolidation

Before making a decision, consider the drawbacks of bill consolidation.

• Approval isn’t guaranteed. Your ability to get a loan for bill consolidation depends on your credit and income. If you don't meet a lender's qualification requirements, the lender will most likely deny your application.

• Low rates aren’t guaranteed, either. Debt consolidation loans offer a range of interest rates, depending on your loan type. The rates you're offered may equal or even be higher than the rates you're paying on your debts now.

• Bill consolidation options are limited. You can consolidate services with companies that offer bundle packages. But bundling isn’t available with many types of bills, unless you want to use a third-party service and pay a monthly fee.

• Debt consolidation isn’t a magic bullet. A debt consolidation loan is a tool that can help you manage and pay down your debt. But if you get a loan to pay off your credit cards and then charge up new balances on your cards, you’ll end up with even more debt to repay.

Types of Bill Consolidation Loans

If you're interested in loans for bill consolidation, there are several options. These alternatives have a range of maximum loan amounts, repayment terms, collateral requirements, interest rates, and fees. 

Here are four possibilities for consolidating debt with a loan. 

Personal loan

You can take out a personal loan for almost any reason, including debt or bill consolidation. (Many personal loan providers have an exception for student loans, however, and don’t allow them to refinance educational borrowing.)

When you’re approved for a personal loan, you get a lump sum of money you can use to pay off and consolidate debts. You pay back the personal loan with interest according to the repayment schedule set by your lender. 

Personal loans for debt consolidation are usually unsecured, meaning you don't need any collateral. Whether you qualify depends on your financial situation and credit standing. The amount you can borrow depends on the lender. Some lenders offer bill consolidation loans up to $100,000. 

Rates are typically fixed, though it's possible to find lenders that offer loans for bill consolidation with variable rates. You may pay fees, such as origination fees when you first get the personal loan and a prepayment penalty if you pay off your loan ahead of schedule.

Home equity loan

A home equity loan allows you to borrow against the equity in your home. Equity is the difference between what you owe on the home and what it's worth. If your home is worth $500,000, and you owe $400,000 on your mortgage, then you have $100,000 in home equity.

Home equity loans are mortgages. Your home guarantees the loan. If you default on the loan, you could lose your home. That's the most significant risk associated with home equity loans. 

The upside is that home equity loans tend to have low, fixed interest rates, so your monthly payments are predictable. Loan terms usually range from 10 to 30 years. The sooner you pay off a home equity loan, the better, since that minimizes what you pay in interest.

HELOC

A home equity line of credit or HELOC is another way to borrow against your home equity. Instead of a lump sum, you get a revolving line of credit that you can borrow against as needed. This could be helpful if you don’t plan to consolidate your debt all at once. 

One important characteristic of many HELOCs is that during the first few years (called the draw or borrowing period), your minimum payment is just the interest charged. When you only pay the interest, your balance doesn’t go down. If you expect to earn a higher income later and need breathing room now, this can be helpful. But the flip side is that when the repayment phase starts, your payments will spike dramatically. 

HELOCs usually have variable, rather than fixed, interest rates. A few lenders have begun offering fixed-rate HELOCs instead of home equity loans. If you borrow a lump sum to consolidate debt, these loans behave much like fixed-rate home equity loans.

Balance transfer credit card

A balance transfer credit card is also a revolving line of credit, like a HELOC. Borrowers use this type of credit card to get an interest-free period in which every dollar they pay goes toward reducing their balance.

When you transfer a balance, you move it from one credit card to another. The new credit card usually offers a low or 0% annual percentage rate (APR) for a set time frame. The promotional rate period might be anywhere from 12 to 24 months.

During that time, you pay no interest on transferred balances. That can be a great way to save money while consolidating bills, especially if you can pay the balance in full before the introductory rate ends. 

Balance transfer credit cards typically charge a 3% to 5% fee to move balances. This fee is added to the balance you repay. To compare balance transfer cards, look at how long their interest-free periods last as well as the balance transfer fee each one charges.

How to Consolidate Debt

The process for consolidating debt with a loan is pretty straightforward. Follow this simple checklist if you’d like to consolidate your bills with a loan.

• Organize your bills. Make a list of the bills you want to consolidate, including the creditor name, account number, balance, interest rate, and monthly payment.

• Choose a loan option. If you’re a homeowner, a home equity loan and a HELOC are both on the table. If not, or if you don’t want to borrow against your home, you could get a personal loan or a balance transfer credit card.

• Compare loan options. Once you decide on a type of loan, take time to shop. Compare borrowing limits, interest rates, fees, and loan repayment terms. If you're looking at balance transfer credit cards, check the balance transfer fee and how long you'll have to pay off the balance before the regular APR kicks in.

• Apply for a loan. You can apply for bill consolidation loans online in minutes. You'll need to provide personal information and proof of ID. You may also upload bank statements or pay stubs. 

• Accept the loan offer. Once a lender approves you for a bill consolidation loan, you'll have a chance to review the loan terms. You can decide whether to accept the offer or not. You’ll skip this step if you applied for a balance transfer credit card—if you’re approved, the card issuer sends you the card in the mail.

• Receive funding. If you accept a bill consolidation loan offer, the lender will deposit the proceeds into your bank account. That can take a few business days, depending on the type of loan. Once again, this step doesn’t apply with balance transfer cards, since you’re not getting a loan.

• Pay off your debts or transfer your balances. When the proceeds from a debt consolidation loan hit your bank account, you can use the money to pay off your bills. If you're transferring balances with a credit card, you’ll set up your balance transfers with the credit card issuer.

• Repay the consolidation loan or line of credit. Once you've consolidated your debts, the final step is paying off the consolidation loan, HELOC, or credit card. Again, you'll make monthly payments according to the schedule set by the lender.

At this point, you can follow the payment schedule with your consolidation loan and avoid taking on any new debt. If you got a HELOC or a balance transfer card, you’ll have more flexibility with how much you pay, as these have no fixed payment schedule. In that case, pay as much as you can, because the more you pay, the sooner you’re free of debt.