When Is Consolidating Bills A Good Idea?
Consolidating bills is not a good strategy for everybody, but there are a good number of people who can reap immediate and important benefits from a well executed bill consolidation plan. Here are some examples of situations in which consolidating bills can be a real advantage.
- If you have credit cards high interest rates and high balances, so that most months you can only afford to make the minimum monthly payment, and if your credit score is high enough to qualify you for a low interest credit card with a high enough credit limit, then consolidating bills on a new credit card can be an easy “do-it-yourself” strategy that can really help.
- If you have a large number of credit cards with different due dates, the task of paying them all on-time creates a risk of accidentally missing a payment and hurting your credit score. Consolidating multiple credit cards reduces that risk and simplifies your monthly bill paying process.
- If the sum of your minimum credit card payments plus utility and auto loan payments is too high to comfortably pay on a monthly basis, and you faces serious risk of missing payments, using the services of a debt management company may be right for you. Many of these companies will negotiate lower interest rates and even forgiveness of late fees. They then accept a single monthly payment from you from which they pay your creditors at the lower rates they have negotiated. Be aware that the use of these services is expensive, and may actually increase the total amount of your debt.
- If your credit score is already damaged, and you need to begin repairing it to help you achieve favorable financing terms on a home mortgage or other future financing requirement, a qualified debt counselor can help you find ways to consolidate and pay down your debt to improve your credit score as quickly as possible.
If I Think That Bill Consolidation May Be Right For Me How Do I Start The Process?
Consolidating bills is not right for everyone. There are plenty of unscrupulous operators in the debt consolidation field that will jump at the chance to make a profit on services that you don’t need, and which may end up making your debt situation worse than it was. Here are four simple steps anyone considering consolidating bills should take before starting:
- Start out by collecting one or two monthly statements for each of your credit cards, and the loan documents for other consumer loans you may have such as automobile loans or installment loans for major purchases from department stores.
- On a single sheet of paper, list the balances, interest rates, minimum payments, and amounts you have been able to pay on each debt over the past several months.
- On a separate sheet of paper, list all other regular monthly payments such as rent, insurance, parking, health club memberships, and storage locker costs. Add estimates for variable cost items such as food, clothing, entertainment, and travel.
- Take the information you have gathered to a reputable debt counselor from an agency that does not have any financial stake in the advice they may provide to you. While this type of debt counseling is generally not free, the experience and specialized skills of an accredited debt counselor can help you avoid debt management mistakes costing hundreds of times the price of their service. The debt counselor will help you to develop a livable monthly budget that includes a realistic estimate of what you can afford for debt payment. The counselor will also help you to understand the advantages and costs associated with the approaches to consolidating bills that are available to you.
Final Thoughts on Consolidating Bills
If you determine that using the services of a specialized debt consolidation company is right for you, here are three final things to remember:
- Be extremely careful in the selection of the specialized debt consolidating company you choose do business with. Profits in this business are potentially very high, and the combination of fear and ignorance that characterizes many customers has historically attracted unscrupulous operators. Don’t sign up with the first company you encounter. Only consider firms with national accreditation for both the company and the individual counselors. Look for a company that has been in business at the same location for 5 to 10 years, and check out your final selection with your community’s Better Business Bureau before signing any contracts.
- Get a free copy of your own credit report, and learn how credit rating agencies determine credit scores. While it may be wise to get most of your credit cards out of sight and out of mind, you will find that it actually helps your credit score to keep one or two credit cards active, as long as balances are kept low relative to credit limits, and all payments are made on time.
- Stay in touch with that original debt counselor, the one with no financial interest in the path you follow to consolidating bills. Both your debt and income circumstances will change over time. The strategy that fit best when you first started working together may not be best for you a year or two down the road. Substantial dollar savings may be available to you by adjusting your plan, but you only get the benefit of those savings if you take the time to look for them.