You may have heard of a bill consolidation loan before. If you’re having a hard time paying your bills, it might seem like an attractive option. However, you might not know the subtle nuances of this type of loan.
We’ll run through some scenarios where a bill consolidation loan makes sense in the following article. We’ll also cover what you should expect to see from the best debt consolidation loans.
What is a Bill Consolidation Loan?
A bill consolidation loan is a loan you use to pay off several existing bills, sometimes ones where the accounts are in arrears. It works by taking out a single loan to pay off all your outstanding bills at one time. Consumers often apply for a similar loan if they’re trying to pay off several credit card debts at once.
The best bill consolidation loans are usually ones where the interest rate on the loan is better than the rate you’re being charged on your current debts. Now, let’s look at two scenarios where getting one of these loans is a viable option.
1. Single Payments
One of the issues you might run into if you owe multiple entities money is that you owe them chunks of cash at different times of the month. You might have some companies expecting cash on the 1st, the 10th, the 15th, or some other date.
It’s easy to get confused regarding what you owe and when you owe it if you’re in this situation. A bill might blindside you, and if you can’t pay it, a company might repossess something you need or shut off one of your utilities.
A bill consolidation loan generally allows you to make a single payment per month. You should find that tremendously helpful as you work to get out from under your financial obligations.
2. Lower Payments
You might also get a bill consolidation loan if the lending entity agrees to let you pay lower amounts each month than what you’re paying right now. It could be that the high payments on your current debts are too much for you to handle.
Securing a consolidated loan with a lower financial obligation each month might work better for you if the numbers fit your current cash flow. Just remember that if you agree to pay less each month, that normally means you have a longer repayment period, and you’ll probably pay more in interest during that time.
A Bill Consolidation Loan Can Be a Prudent Option
A bill consolidation loan is sometimes a way to simplify your repayment schedule if you owe several entities and you’re having a hard time paying them back. If you pursue this option, you can pay them all off, and be left only owing one lender.
You might do this to simplify repayment or if you can secure a better interest rate than you’re paying right now. One final reason you might go this route is if you can make lower payments than what you’re making right now.
If you can secure a loan that helps you out in these ways, it might seem like a no-lose proposition. Just keep in mind that it may take you longer to pay the loan back and that could translate to you paying more in interest over time.