At a Glance

Managing multiple debts can be confusing and stressful. But a bill consolidation loan, also referred to as a debt consolidation loan, can help streamline those debts into a single, manageable monthly payment. Plus, you could save money by locking in a lower interest rate.

In this article, you’ll find:

What is a Bill Consolidation Loan?

A bill consolidation loan is a personal loan that helps you combine existing debts into a single loan. That means one monthly payment instead of multiple. For example, if you’re managing a student loan debt, three credit cards, and an auto loan, you could consolidate those five debts into a single bill consolidation loan.

Then, after you pay off each debt using your new loan, you’ll work toward paying off the debt consolidation loan over time based on the agreed-upon terms. And if the interest rate is lower than your high-interest debt, it may end up saving you money in the process.

When to Use a Bill Consolidation Loan

There are several situations in which taking out a bill consolidation personal loan may be a good idea. Review these to see if it makes sense for you:

You need help managing multiple payments

If managing multiple debts has led to late or missed payments, consolidating debt with a personal loan may help. In addition to simplifying the payment process with one bill payment per month, it may also help to improve your credit score by establishing a solid payment history.

You want to lower high-interest debt

Combining high-interest debt into a personal loan with a lower interest rate can save you a lot of money over the life of the loan. For example, if you have high-interest credit card debt, a bill consolidation loan may be the best way to consolidate credit card bills and lock in a lower rate. And while it often takes a credit score in the good or excellent range to qualify for the best rates, there are bill consolidation loans for bad credit available to borrowers working to improve their credit score.

You want a predictable payment schedule

Certain debt, like credit card debt, can have variable interest rates. And that means the interest rate can increase at any time. But most bill consolidation loans are fixed-rate installment loans, which means you’d lock in an interest rate and have set monthly payments for the life of the loan, regardless of how interest rates change in the economy.

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If you’re having trouble managing multiple debts, have high-interest debt, or want a predictable payment plan, bill consolidation may be for you.

Benefits and Risks of Debt Consolidation Loans

There are pros and cons of bill consolidation loans. Among the benefits are that they may help you save money on interest, simplify payments, and lock in predictable monthly payments. Plus, making a larger monthly loan payment on a single debt could help you pay off debt faster since you’ll no longer be making the minimum payment on multiple debts.

But it’s worth noting that debt consolidation loans come with a few risks. To take out a bill consolidation loan, you may need to pay origination fees and potentially face prepayment or late payment penalties down the line.

Before committing to a loan, work with the lender to understand potential fees and the circumstances under which they’d be enforced. You’ll also need to shift the behaviors that put you in debt in the first place. Clearing up credit cards and getting them down to a $0 balance is great. But if you fall back into old habits and begin racking up more debt, it could hurt your credit score in the long run.

Related: Does Debt Consolidation Hurt Your Credit Score?

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There are benefits to bill consolidation loans, but changing the habits that got you into debt in the first place should be your top priority.

How to Get a Bill Consolidation Loan

How to get a bill consolidation loan is a simple process that takes only a few steps.

1. Get organized

Before you begin to research a consolidation loan, you’ll want to create a list of your existing debts. Be sure to include interest rates, minimum monthly payments, and balances due.

2. Research lender and loan options

When using loans to pay bills, it’s important to do sufficient research on both lenders and loan options. Look for reputable lenders offering personal loans and closely review the debt consolidation loan interest rates and terms. It may be smart to use a debt consolidation calculator to determine how much you can save.

3. Submit an application

Many lenders let you submit an application for a bill consolidation loan online. And you may receive an eligibility decision within minutes. While those with great credit scores may receive the lowest rates, borrowers with bad credit may still have options for debt consolidation that are worth considering.

4. Receive funds and pay existing debts

If you’re approved for a bill consolidation loan, either you or your creditors will receive funds that will be used to pay off existing debts. If lenders send the money straight to you, it’s essential to use it to pay off your debts. Then, you can decide if you’ll close those accounts or leave them open. Keep in mind that leaving them open could help your credit score by boosting the length of your credit history.

5. Begin repaying your bill consolidation loan

Once existing debts have been paid, you’ll start to aggressively pay down the bill consolidation loan. Since you’re managing only a single monthly payment, you can put all excess cash toward the bill consolidation loan at the end of each month.

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Once you receive your loan, it’s crucial to pay your debts in full and then begin making payments on the new loan.

Alternatives to Bill Consolidation Loans

There are several alternatives to bill consolidation loans you may want to consider as well.

Balance transfer credit card

A balance transfer credit card with a 0% APR offer is a good alternative to consider in certain instances. If your debt balance is low enough that you feel confident you can repay it during the promotional window where you have 0% interest, you could end up saving a lot of money in interest.

Home equity line of credit (HELOC) or home equity loan

You may qualify for a low-interest HELOC or home equity loan if you own your home and have equity. Since these loans typically have low interest rates, it may be worth talking to your mortgage lender to review this option.

Are Bill Consolidation Loans a Good Idea?

Bill consolidation loans may be a good idea depending on the types of debt you have and your financial situation, including your credit score. If you have multiple high-interest debts and you’re having difficulty managing payments, consolidating to a personal loan with a lower interest rate can save you time, money, and damage to your credit score.