How to Consolidate Your Credit Bills

If you want to consolidate your credit card debt, you may choose a consolidation loan. Those who have defaulted on credit card payments and are in dire financial straits may qualify for a debt management plan. Both options consolidate your debt and allow you to make one monthly payment. You must be completely dedicated to paying off your debt and keeping it that way to find success with either.

Instructions

1

Consider your options carefully. A consolidation loan uses collateral, such as your house, to secure funds that wipe out your credit card balances. You make just one monthly payment; however, many fall prey to the lure of using their newly freed credit. If you're already delinquent, you need to speak to a credit counselor about whether or not you qualify for a debt management plan or DMP. If you qualify, the counselor will attempt to negotiate lower interest rates and payoff balances, then create a timeline over which you will pay off your debt. A consolidation loan may make it difficult to obtain new credit; most DMPs require that you don't even attempt to apply for new credit.

2

Research to get the best rates and service. Consolidation loans are often advertised at very low rates; however, you must have excellent credit to qualify for these rates. Get estimates from several different lending institutions to find the best rate -- and don't forget about credit unions. With a debt management plan, it's vital that you work with a reputable credit counseling program to avoid taking a further hit to your credit score. With a DMP, you make payments to the counseling company and they pay your creditors. If the counseling company is late on making your payments, your credit score will plummet. Check with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to find out whether or not your credit counseling company is reputable.

3

Apply for and accept your consolidation loan or DMP. It's vital that you understand that a consolidation loan is an additional line of credit, which means that the application itself grants a lender permission to access your credit report. This inquiry creates a negative impact on your credit score. For DMPs, you will have filled out paperwork with the credit counselor to qualify for a DMP. The paperwork upon acceptance of the plan means that you agree to make monthly payments to the credit counseling company over a specific period of time to pay off your debt.

4

Make your payments on time, in full, each month. One reason debt consolidation has such a bad reputation is that people fall further and further behind on their payments, which creates an even greater negative impact on their credit scores. However, if you follow through by making your payments on time each month, you'll boost your credit score and pay off your debt. Users of consolidation loans must be particularly careful not to use the newly freed credit that is opened up by the loan.