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    Bill Consolidation Loans: How do they work?

    Bill Consolidation

    Let's face it, paying bills certainly isn't fun. If you have monthly debt payments and loans that need to be repaid, it can be difficult to keep everything straight. Fortunately, bill consolidation loans simplify the entire process, and they can save you a bundle too.

    What is bill consolidation?

    Bill consolidation is the process by which all of your debts and bills are ‘consolidated’. By bundling all of your debts together and taking out a loan to pay all of them off immediately, you will only have one recurring monthly payment to make on your loan.

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    How does bill consolidation work?

    With multiple debts to repay, at different interest rates, due at different times of the month, it makes sense to use bill consolidation loans to simplify your debt obligations.

    The process can be completed in a series of steps, namely:

    Step 1 - Prepare your application

    Your application is the most important step in the process. First decide upon the specific loan option that best suits your needs and will help you to save money. Compare interest rates, loan terms, and the fine print among the providers. Attach any required documentation, and finalize your application

    Step 2 - Get funded

    As soon as your loan is approved, the money will be sent directly to your bank account.

    Step 3 - Repay your debts in full

    The most important step in the process is to use your bill consolidation loan to repay your debt in full, not to spend it wastefully. That way you get the maximum benefit from the loan.

    Step 4 - Pay off your loan

    The benefit of this loan is that you only need to make one monthly recurring loan repayment at a lower overall interest rate than the sum of the bills and loans that you consolidated. Repay the bill consolidation loan in full ahead of schedule, or on schedule, until completion.

    Some Examples

    Case 1:

    Steven has $25,000 worth of medical bills that he is paying off monthly. While this debt does not collect interest, the payment term of four years results in monthly payments amounting to $520. While Steven was recovering from his medical issues, he was unable to work and relied on unemployment insurance for income. This barely covered his rent and Steven was forced to use his credit card to pay for essentials such as food and transportation, racking up $8,000 of debt in the process.

    Steven eventually returned to work but his minimum monthly debt payments totaled $840, an amount he found difficult to manage. A bill consolidation loan with a term of 10 years will reduce Steven's monthly debt payments to $275, a much more manageable amount.

    Case 2:

    Fionna never learned responsible spending habits and quickly accumulated $15,000 of debt over three high-interest credit cards. If Fionna only paid the minimum balance on all her cards (a total of $414), it would take years to pay off her debt and the total cost would amount to nearly double her initial balance.

    Through consolidation,  Fionna would be able to combine the debt into one payment She would also save money on interest costs since consolidation loans carry a lower interest rate than most credit cards.

    Why is it important to consolidate your bills?

    If you have multiple financial obligations every month such as creditors who are hounding you for their loans to be repaid, credit card bills, medical bills, and store credit bills that need to be repaid et cetera, it can get taxing quickly.

    Most of these bills have different repayment dates and different rates of interest associated with them. Sometimes, it's easy to forget about certain bills because there are so many of them. 

    What types of bills can be consolidated?

    Any number of bills can be consolidated with a bill consolidation loan. These include standard household debt, automobile loans, credit card loans, medical bills, personal loans, past-due utilities, and the like.

    Before you consolidate debts, be sure that the outstanding debts indeed have interest repayments on them, otherwise, you will be spending more money on a debt consolidation loan.

    Generally, there are 3 broad categories of bills that can be consolidated. These include the following:

    Medical Bills – even with healthcare insurance, medical bills can be extremely costly. If you find yourself under pressure to repay your bills, you may want to consider a bill consolidation loan.

    Household Bills – household bills include many different types of debts such as utility bills, home expenses, child-related expenses, debt obligations, pet care 
    expenses, miscellaneous expenses, transportation expenses, personal care expenses, entertainment expenses, et cetera. If these bills become overwhelming, you may wish to consider consolidating your bills.

    Credit Card Bills – credit card debts are the biggest bugbear for most individuals and families. Unfortunately, revolving credit card bills are associated with high-interest rates. Credit card debt consolidation is the process by which you combine several different payments into a single, recurring monthly payment with a bill consolidation loan at a lower interest rate than the credit card interest rate.

    How To Find A Bill Consolidation Loan

    There are several lender options to choose from when considering a bill consolidation loan. Deciding upon the best option depends largely on the lenders' credit score, financial situation, and the type of debt in question. Below is a brief overview of the available options.


    For the vast majority of people, the bank will be the lender of choice for a consolidation loan. Banks usually offer the best rates available for individuals who meet the lending requirements. Choosing this option allows you to sit down and speak face to face with a real person to discuss what options are available.

    Those who have a credit score below 630, have a high debt-to-income ratio, or do not meet the minimum income requirement will have a difficult time securing a bill consolidation loan from an established bank.

    Online Lender

    Online lenders usually offer same day approval and will often deposit money into the borrowers account in as little as 48 hours. Individuals with credit scores that do not meet a bank’s minimum requirements generally turn to online lenders for approval. Those looking to consolidate bills with bad credit can expect to pay higher interest rates.

    Debt Relief Company

    Debt relief companies are another option for people with credit scores on the lower end. These companies are specialists in debt consolidation and usually have relationships with lenders that allow them to access rates and terms that individual borrowers cannot.

    Our Tip

    It's pretty easy to understand how bill consolidation can help you repay your debts, save money on interest repayments, and manage your finances much more easily.

    However, it's important to address the reason why you got into debt in the first place. Applying for a new loan means that you are incurring additional debt. Think carefully before you decide on a bill consolidation loan.