Most people start out with a desire to keep up with their bills and pay them on time. Unfortunately, life sometimes gets in the way of doing so, and it's all too easy to end up with debts that are difficult to pay. When this happens, some people seek out debt consolidation options in order to avoid simply defaulting on their bills.
Significance
Whether or not a bill consolidation program or loan will be good for you depends on a number of factors. All types of debt consolidation loans have both pros and cons that must be considered carefully in terms of your unique situation. According to MSN Money, for example, a person may take a home equity loan in order to consolidate his bills. This offers him the ability to pay one bill each month instead of several. In some cases, home equity loans may even offer lower interest rates in comparison to the total interest rate on multiple bills. However, if the person defaults on the loan, he risks losing his home (see Resources below).
Types
Among the many types of debt consolidation options are signature loans, credit card programs, debt consolidation mortgages, mortgage refinance loans, debt consolidation counseling and loans that borrow from a person's retirement fund. To determine which one might be best for you, you have to consider the interest rate you'll be paying and the overall amount you'll be paying over time. In some cases, the interest rate may be so high that you end up paying a dramatically different amount than you would have if you stuck with paying your bills individually. According to MSN Money, it may be better to make better payment arrangements with each creditor, in some cases, than to end up with a much more costly loan (see Resources below).
Considerations
As far as debt counseling is concerned, you may do well with a company that can develop a solid plan for getting you out of debt. Such counseling programs can help you to pay off your bills within 3 to 6 years. These programs may not only help you to work out a plan with your creditors, but they may also pay the bills for you, using your money. However, if they fail to pay your bills on time, you could rack up late fees and take a hit to your credit score. Additionally, credit counseling agency fees may just add to your expenses.
Prevention/Solution
According to Bankrate, it's always a good idea to check into the reputation of the company you're planning to deal with when you're seeking debt consolidation programs and loans (see Resources below). Check with the Better Business Bureau to find out whether or not the company has been accused of having abusive lending practices or misappropriating money provided for bills. No matter how good a bill consolidation program sounds, you'll want to skip it if there are blemishes on the company's record. Since there are so many companies that help with bill consolidation, you should have plenty of choices.
Warning
In deciding whether or not bill consolidation is a good idea, you always have to consider the risks. With debt consolidation loans that involve your home, consider the risk of foreclosure if you cannot meet your new loan payments. With loans from your retirement account, consider penalties you may be charged. According to SmartMoney, you may have to pay taxes and a 10-percent penalty for withdrawing money from your retirement fund early, at least in some cases (see Resources below).
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