You would use a bill consolidation company if you have a lot of bills and want to consolidate them into one. There are a number of reasons why you would want to do this including the fact that you are able to lower the rate that you pay and you might also be able to negotiate the cost of late payment fees. However, before you rush into any agreement, you need to compare all the different rates and terms they have to offer. Monitoring your statements is a good idea too because you don't want any errors to slip by.
You might also see bill consolidation companies being referred to as debt management plans (DMP) and basically they can help you deal with short-term debt such as car loans. The company you use should be able to negotiate a lower rate of interest with your current lender(s). Frequently you'll be able to have any late payment fees eliminated.
Instead of paying the different creditors their monthly amounts, you simply pay the bill consolidation company who then pay the different lenders. There will of course be a fee involved but often it's still cost-effective. However you should note that not all loans are suitable for a cost reduction, for instance mortgages and student loans.
How much you pay in fees can really depend on the individual. Most of the time, people will pay on a monthly basis however you might pay a fee upfront. It's probably a better idea to go for the monthly option just in case you decide not to continue the plan.
Another thing that you should be aware of is the fact that many of the lenders will report to the credit agencies that you are using a bill consolidation company. As a result, you might find it difficult if you are wanting to open bank accounts, apply for credit cards or take out another loan. The good news is that if you pay on time for a number of months, your credit rating will improve to the point where you might be able to apply for credit again. A year later you might even find yourself able to apply for a mortgage.
When you are browsing around for the best debt consolidation company to use you are best off looking for one which specializes in this area of debt. There are some that offer a range of services and they might not be the best to go for.
It's also advisable for you to ask when the account will be fully paid off. A knowledgeable company will be able to tell you because they know what the current rates are. Simply give them details of your creditors and how much you owe.
As with most companies, they will all differ greatly in terms of their fees. So it's important to request quotes for a number of companies rather than just one or two.
If you're the sort of person who is having difficulty with their finances, then you should make sure you also monitor your credit health on a regular basis. You can do this by contacting the major credit agencies for a copy of any records they have on you. If you see anything that is wrong then you must let them know so that they can fix it.
Becoming debt free is a dream many people have nowadays, when even dogs and cats would take a loan if they could. It surely feels good to enjoy a life standard that you can’t yet afford (or you may never ever afford), but sometimes the price to pay is simply too high. This has become obvious during the latest financial and economic crisis, with so many families affected by the impossibility of paying their debts any further, and with bankruptcy becoming more and more the word of the day. There were more suicide attempts than ever, from heads of families who found themselves overwhelmed by the responsibility of taking care of their wives and children, so they preferred to voluntarily put an end to that by killing themselves.
I’ve decided to write this article because I was also affected by the crisis and I’ve made a decision to get out of debt completely in no longer than a couple of years or so. This is my mini guide which is already starting to show results:
1. Expensive credit should be repaid first
Usually, credit cards come with the highest interest rates, so you should try to repay all debt as fast as you can. It’s also very important, once you’ve made it, not to be tempted to use your credit card a lot again. You know how much money you can afford to spend each week, so be nice to yourself and when the amount is over, don’t spend anymore on things that aren’t vital. If you think a new iPod or the newest Gucci bag are vital, then think again. Millions of people can survive without. I’ve managed to reimburse my credit card debt completely by not buying the following “must-have” items: an Asus EEE PC netbook, a pair of Hush Puppies shoes, a new car (the current one being in perfect shape and less than 4 years old), a new lens for my photo camera, a special bag for the same photo camera, a new couch, new carpets, a flat screen TV set. Before, I would have just bought all these and probably many others, without even blinking. It’s just that easy to give the shop assistant this little piece of plastic and to sign a receipt in order to take home whatever you find attractive in that shop. I had to put an end to that. It’s true that I’ve suffered a couple of times, and that I still have those shoes in mind, but I feel so good that I’m not paying any more interest for the credit card debt, that it was worth the effort and the sacrifice.
2. Unsecured debt comes next after credit card debt, in term of interest rates
However, you shouldn’t use your credit card to repay unsecured debt. Try just not to take such additional loans that would make your financial burden even heavier. It's true that any of us would easily be tempted by getting a big amount of cash to solve our current issues, but a brief glimpse into the future shows that we're wrong to think like that. I'm not considering here life or death situations like surgery or similar things, as those are exceptions when all rules and guides should be forgotten.
3. Make a choice between earning more or spending less
It’s a pure math problem: total income minus total spending should give a positive result. If it doesn’t, you have two ways of reversing this: increase the amount of money that enters your family accounts or decrease the amount of money that flows out of your accounts. Personally, I believe it’s easier to focus on making more money rather than cutting from vital things. Again, re-evaluate what’s vital for you and see how much you can compromise on that.
4. Mortgage is also part of your spending
This is probably too big to manage getting rid of in a matter of several years, but with proper finance management you can integrate it into your budget without needing to use credit cards or unsecured loans to be able to pay your mortgage installments.
5. Money doesn’t bring happiness
OK, so you’ve raised your living standards with the help of credit, but are you happier? I bet you still have your frustrations and discontents, your worries and your fears, so at the end of the day, what’s the use of all those goods you’ve surrounded yourself with? Shakespeare must have known that, as he put these words into the mouth of one of his characters, Hamlet, Prince of Denmark:
I could be locked in a nutshell and I would still feel like a king of a borderless reign, if only I hadn’t these bad dreams.
This is a quote from my memory, but the main idea is that happiness is not inside things money can buy, but rather in the way you see the world. Becoming debt free will let you see the sunny side of the world.
