Bill consolidation is a common solution for people with overwhelming debts. It makes bill paying easier by combining all debts in one single loan. If done correctly, bill consolidation can significantly reduce the borrower’s monthly payments. However, the interest rate on this kind of loan varies. Some people pay around 20% interest on their bills.
How can you get a lower interest rate? You can work on improving your credit score. This means paying your bills on time, paying off your monthly balance or making at least minimum payment every month, looking for errors on your credit report and keeping your credit card balance at less than 30% of the credit limit. You should also avoid getting new credit cards. Setting up automatic payments can help you avoid missing payments.
There are various ways to consolidate your bills. One of these is to take a personal loan from a friend or family member who might offer low interest rates. Another way is to find a credit counseling agency and ask about a debt management plan that suits you. This agency works with lenders to lessen your monthly payments and interest rate. You give your payment to the agency every month and the agency pays the creditor at a rate both parties agreed upon. The plan usually lasts three to five years.
You can also transfer your debts to a zero percent credit card. However, this method is only efficient if you repay your debts before the introductory period ends. Another way to consolidate your bills is to apply for bank loans. You borrow enough money from the bank to repay your bills and negotiate for a reasonable interest rate.
How to Compare Rates
When comparing interest rates, you should not just compare the rate offered. Some bill consolidation plans also have an initiation fee and early termination fee. These fees might eliminate the savings you believed you were gaining from a favorable interest rate. For personal loans, the interest rate can be high if your credit score is low. If you are interested in zero percent interest rate introductory credit cards, you have to repay it before the interest rates of the new cards take effect.
You may find it hard to qualify for a loan if your credit score is less than 600. Applying for a home equity loan is one option, but the risk is you will face foreclosure if you fail to pay. You can also apply for a secured loan from a credit union or bank. You’re required to put up collateral like your house or car. You will lose the collateral if you fail to repay the amount you borrowed.
Check your credit score and report before you do anything. Make sure that everything is correct. If there’s an error on the report, you should file a complaint right away and get it fixed. You should also avoid maxing out the limit of your credit card as it has a negative impact on your credit utilization rate. Paying your bills consistently helps you create a positive payment history and improve your credit score.