Pros and Cons of Bill Consolidation

If getting the mail every day brings in an avalanche of bills, dealing with your finances is likely a stressful issue. If you are struggling to make your payments on time or even delaying some bills so you can pay others, it’s time to sit down and take a hard look at your finances. One possible solution to consider is consolidating your debts. This involves getting one big loan to cover all your little ones and then paying that one new loan on time each month. At first glance, this might seem like a good idea, but it might not be in your case. Debt consolidation has both good and bad points.

Kinds of Consolidation

There are a few ways to consolidate your debts. Some of the most common are credit card programs, home equity loans and retirement fund loans. If you have several credit card accounts, you can consolidate them into one larger account. Look for a credit card company that offers low interest for a certain amount of time and pay off the balance before the interest jumps.

Home equity loans involve taking out a loan against the equity in your home and using it to pay your debts. You then pay on your home loan each month. You may also be able to a take a loan from your retirement loan to pay off your bills.


Many companies advertise to help you with bill consolidation and tout their benefits. Credit card companies, for example, will promote low introductory interest rates as a way to get you to take an advance to pay off your debts. If you pay the new credit account off before the interest rate jumps, you could save money on the interest you would have paid on your higher interest accounts.

A home financing company might offer you a loan sizeable enough to cover all your bills. A retirement fund may allow you to essentially borrow from yourself. All types of bill consolidation allow you to merge your debt into one account, so you only have one bill to pay each month.


Each type of consolidation also carries a risk. If you don’t pay the new credit card off before the interest rate jumps, you could end up paying much more interest than you would have on your separate cards. A home equity loan poses an even greater risk; if you become unable to pay it, you could lose your house. Retirement funds sometimes carry penalties for not paying off loans on time. Simply withdrawing money early from a retirement fund also brings penalties.

Debt Consolidation Companies

There are companies which offer to help you with your consolidation. They often contact your creditors, arrange more affordable payment plans, collect a monthly payment from you and then pay your creditors each month. Beware of these companies. Some will give you bad advice, such as refusing to pay a creditor while you build up cash, which can lead to the creditor reporting you to the credit bureau or even suing you. Others take your monthly payment but don’t pass it to your creditors. Some, however, are legitimate. Contact your local Better Business Bureau to check on any consolidation company before you sign up.

As you learn about your debt management options, you might find that credit counseling is best. An organization such as Consumer Credit Counseling will assess your situation, contact your creditors and help you arrange more affordable payments. If you are willing to put in the time and effort, you could also contact your creditors on your own and try to arrange lower payments that are easier for you to make each month.

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