There are a number of methods consumers can use for consolidating bills, including hiring a company to do it for them, taking out another loan to pay off debt, and negotiating directly with creditors. The best option depends on the individual consumer and the type of bills outstanding. It can be helpful to talk with a credit counselor to get specific advice in a given situation. Government agencies and some banks offer free credit counseling to members of the public who need help handling their debt.
In some cases, the most effective option can be working with a bill consolidation company. These organizations will negotiate with creditors with the goal of lowering interest on loans, and collect a single monthly payment from the consumer to distribute to all creditors. These companies do charge a fee for this, and consumers should read their contracts carefully to make sure they understand what they are committing to. While these companies may be able to negotiate debt down, the savings they create could be eaten up by their fees.
Using another loan for consolidating bills can be a good option. If consumers have credit available, putting all loans on a single credit card or applying for a new card with good promotional terms provides an opportunity to pay off debt with a single monthly payment. It is important to be alert to interest charges in association with the loan, as these may spike after the introductory period. Some banks and credit unions offer personal loans customers can use for consolidating bills, and it's also possible to refinance a home and get cash out to pay off bills. This can have the advantage of creating tax benefits for the consumer.
Negotiating directly with creditors is another option. People with student loans, for example, may be able to fill out a consolidation application to get one lender to buy out all their other student loans so they only have to make a single monthly payment. Credit card companies may be willing to do balance transfers, allowing customers to move money between cards to put it all on one. Consumers can call to ask about available options for consolidating bills.
While consolidating bills, consumers should watch out for some common pitfalls. High interest loans should be paid off first, and it is important to avoid taking out a higher interest loan to pay off another loan, as this can put the debtor deeper under water. As consumers pay off debts and revolving credit balances, they should be careful about running up more debts, or they may end up back where they started.