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Using Bill Consolidation Programs to Manage Debt

Using Bill Consolidation Programs to Manage Debt

Bill consolidation programs can both simplify your financial life by combining multiple payments into a single payment, and help you pay down your total debt burden in a more efficient way. Bill consolidation programs can be used to consolidate credit card debt, and also to clear up overdue balances on the service providers we depend on such as our internet provider, cable TV provider, and cell phone service – even doctors. There are several types of bill consolidation programs available.

Switch As Much Debt as Possible To Your Cheapest Credit Source

Of the many bill consolidation programs available, this is the only one you can do entirely on your own. Just follow these simple steps:

  • Make a list of all of your existing credit cards showing the current balances, credit limits, minimum monthly payments, and interest rates for each card
  • Make a separate list of past due bills showing the past due amounts, late payment penalties, and other factors, potentially including collection actions or disconnection of service.
  • Starting with your lowest interest credit card, use the remaining credit for cash advances to pay off high risk service provider debts, and high interest credit cards.
  • When the credit limit on your lowest interest credit card is reached, move to your next lowest interest credit card, and use the remaining credit available on that card to continue the process of eliminating high risk debts and high interest credit card balances.
  • If you are able to completely pay off any of the high interest credit cards you hold, you may wish to close those accounts to avoid annual service charges.
  • It is probably best to keep at least one credit card for daily usage, but be careful pay the entire balance due on time every month.

Take Advantage of an Offer to Open a New Credit Card Account Offering “Zero Interest on Transfers” For a Specified Period of Time

Bill consolidation programs that involve opening a new low interest credit card are very similar to the approach discussed above. If you are patient, such an offer will arrive in your mailbox sooner or later. These offers may seem like an unbelievably good opportunity to restructure your debt. Do bear in mind, however, that credit card issuers are in business to make money, and the old saying “the devil is in the details” applies to these offers in spades. Carefully read all of the fine print. Here are some things to watch out for:

  • Check out the card’s annual fee. You may find that your first monthly invoice includes the fee for the upcoming year.
  • Check out the interest rate that will apply to transferred funds starting after the initial grace period expires, or after you are late on a single payment, whichever comes first. Interest rates on these cards are often at the very high end of the scale. Card issuers are not fools.
  • Remember that if you fill out an application for one of these credit cards, you are authorizing the issuer to pull your credit score. If your credit score is on the low side, they may offer you a card with a lower credit limit and/or higher interest rate than you anticipated.
  • If you do not accept the terms the issuing company offers, it will appear to credit rating agencies that you have applied for credit and been turned down. This may further lower your credit score.

Apply For a Bill Consolidation Loan

Among the most frequently used of the bill consolidation programs are simple bill consolidation loans. The best places to find low interest bill consolidation loans are banks and credit unions. Don’t apply to these kinds of lenders if you aren’t sure that your credit score is high enough to meet their requirements. As with credit card applications, you will be authorizing the bank or credit union to pull your credit score, and if you are turned down, your credit score may be further damaged. As the old saying goes “bankers only want to make loans to people who don’t really need them”.

There are plenty of specialty non-bank lenders that can provide bill consolidation loans to borrowers with tarnished credit histories. You can expect that their fees and interest rates will be substantially higher. Of all available bill consolidation programs, these subprime consumer lenders can be the most hazardous to your financial well-being. These lenders know that you wouldn’t be approaching them if you didn’t really need their help, and probably need it quickly. They are confident that they can get borrowers to accept interest rates and fees so high that they will offset the costs of the defaults they know will occur.

Sign Up For a Formal Debt Management Program with a Well Established and Reputable Firm

For individuals with significant debt burdens relative to their income, the most efficient of the available bill consolidation programs may be the so-called Debt Management Programs, often referred to as DMP’s. These programs are not inexpensive, often including substantial up-front payments. Even so, they may be more economical in the long run than a simple bill consolidation loan from a specialty lender. In a typical DMP, a counselor reviews your living expenses and total debt burden, and determines how much you can realistically allocate to bill consolidation on a monthly basis. The company then collects a single payment in that amount from you. They then use the promise of a portion of that monthly payment as leverage to extract concessions from your creditors. Those concessions may include lower interest rates, extended payment terms, forgiveness of late payment penalties, and in some cases a reduction in the principal owed. A portion of your monthly payment will be retained by the company to cover their costs and profit. You will have the advantage of knowing exactly what your payment will be each month.

Four important consideration regarding DMP’s:

  • You will be paying for this service for five years or more. Check with an impartial debt counselor before signing up to make sure a DMP is the best choice for you;
  • Since you will know the exact amount of each monthly payment, arrange an automatic transfer of that amount from your checking account to reduce the chances of incurring high late payment penalty costs;
  • If you haven’t already got one, set up a passbook savings account, and add to it regularly to ensure you will be able to make your DMP payments on time during unusually tight budget months;
  • Signing up for a DMP is going to damage your credit score. Learn the tricks and techniques of repairing your credit score, and begin employing them as early as possible.