The average American family has 10 credit cards and over $15,000 of credit card debt. Nearly half of these households have trouble making the minimum monthly payments, and some are using plastic to cover daily living expenses such as groceries, gasoline, and the morning latte. Late fees and over-the-limit fees are rising, and more and more households are missing one or more payments altogether.
If you are having debt problems, now is the time to stop this destructive cycle and get the help you need from a debt relief program. This article teaches you the principles of bill consolidation, one of the most popular forms of debt reduction.
What is bill consolidation?
Bill consolidation–also known as interest-rate arbitration or credit card consolidation–takes your high-interest loans and credit cards and consolidates them into one, low-interest loan that you can afford. In other words, you’re taking out one loan to pay off many others. You make one monthly payment to a debt consolidator who distributes the funds to your creditors until they are paid in full. Only unsecured debt–credit cards, medical bills, and personal loans–can be consolidated. You cannot consolidate mortgages, rent, utilities, cell phone and cable bills, insurance premiums, car loans, student loans, alimony, child support, taxes, or criminal fines.
There are two kinds of bill consolidation: non-profit and for-profit. Both types work with your creditors to work out modified payment plans. Contrary to the popular notion, non-profit companies charge a nominal fee for their services. If a bill consolidation company is for-profit, you must also pay an upfront service charge of about 15% of your debt’s face value. For example, if the total amount owed to creditors is $15,000, you can expect to pay a fee of around $2,250.
If you are considering bill consolidation, here is what you need to know first:
1. Bill consolidation will not solve your careless spending and savings habits. The only way that you will ever achieve lasting financial freedom is to apply the dynamic laws of financial recovery to your everyday life. These smart-money principles will help you to establish spending and savings habits that are built on solid bedrock. They are discussed in a separate article entitled “The Dynamic Laws of of a Complete Financial Makeover.”
2. You might not qualify for a bill consolidation loan because of delinquent credit history. In such cases, you might want to look into other debt relief options such as debt settlement. Bankruptcy protection, however, must be considered only as a last resort.
3. If your unsecured debt is less than $10,000, bill consolidation is probably a better option than debt settlement. Here is why: Most debt settlement companies require that you have $10,000 or more in unsecured debt to qualify for their services.
4. Because most bill consolidation loans are unsecured, the lender can’t lay claim to your home if you are unable to keep up with the payments. However, late or missed payments will adversely affect your credit score.
5. If a bill consolidation loan is secured and 債務舒緩 you miss payments, the lender can lay claim to your home or other asset.
6. There is no public record that you have ever consolidated your debts.
7. Bill consolidation should not be confused with debt settlement, another form of debt reduction. With debt settlement, negotiators communicate with creditors on your behalf to settle you debts to reduced and agreed-to amounts. Once you enroll in a debt settlement program, your negotiation team opens a trust account for you. You must deposit up to 50% of your debt’s face value into the account over a period of 24-60 months. This money is used to settle your debts with creditors.
8. As we mentioned above, you can only consolidate unsecured debt such as credit cards or personal loans. You cannot consolidate mortgages, rent, utility bills, cell phone and cable charges, insurance premiums, car and student loans, alimony, child support, taxes, or criminal fines.
9. Bill consolidation could hurt your credit scores over the short term. For example, applying for a bill consolidation loan from a bank or credit union requires a “hard credit check,” which might affect your scores a small amount. More importantly, you must be aware of how a bill consolidation loan might affect your “credit utilization ratio.”