Considering Bill Consolidation and its Costs

When you are frustrated and mired in debt, any agreement that seems to offer the chance to alleviate your situation can appear attractive. Bill consolidation is one of many options that are available to those facing dire straits. While it may be worth contemplating depending upon your financial situation, it is also a means of debt resolution which is used by numerous predatory companies that target vulnerable individuals and play upon confusion and reluctance to be heavily involved in one’s own finances. Before making a decision about whether to pursue bill consolidation, you should be conscious of the consequences of becoming involved in such programs, and how to avoid dangerous traps.
Bill consolidation refers to the process of transferring all debts and loan payments into one bill. In order to consolidate your debt, you must be approved for a debt management program. Under the terms of a debt management program, the company in question will attempt to negotiate a lower interest rate with your creditors in exchange for a fee. Theoretically, the lower rate that is agreed upon is the primary benefit of bill consolidation. The bill consolidation service reciprocates the payments it receives from you by paying your debtors.

The fee charged by the bill consolidation service is sometimes determined in relation to the total debt that is to be consolidated, and it may vary widely, with some rates being extortionately high (common practice with debt settlement companies). Some companies demand an upfront fee, but an increasing number of services charge monthly fees. If you choose to enlist the services of a bill consolidation program, remember that many services use the policy of charging monthly fees as a way to conceal high rates and fool customers. Whenever possible, avoid programs that charge upfront fees, as these are usually extremely high (although monthly rates are often not much lower). Furthermore, many of these programs will claim that their initial fees are partially refundable upon completion of the program, but few actually complete many of these programs given the burden of the service’s cost.

In order to find out a consolidator’s rate, you will need to request a quote. If a bill consolidation service demands a fee in exchange for a quote, regard it as a warning not to employ their services. If the consolidation program offers flexible rates, make sure you know how it will fluctuate and remember that consistent payments are necessary in order to qualify for them.

Remember that bill consolidation is not an “easy fix”. Frequently advertised as a convenient way to simplify your financial dealings, consolidation should not be regarded as a way to escape responsibility for your finances. Many bill consolidation programs, especially those whose services may do more harm than good, try to appeal to potential customers’ desire to avoid having to manage their financial affairs. If bill consolidation is the right path for you, then pursue it with caution, and make sure you do not become uninvolved or relinquish responsibility for your finances.

Siddarth Nagaraj

Siddarth Nagaraj is a junior at the University of North Carolina-Chapel Hill. He is currently pursuing a double major in Global Studies and Political Science with a minor in Geography. Originally from Winston-Salem, North Carolina, he is interested in socioeconomic inequity and cultural diversity in developing nations. He is also a Section Editor for The Hill, UNC’s only nonpartisan political review, and has written multiple articles on international affairs for the quarterly publication.

Since the summer of 2010, he has volunteered as a Savings Officer for the Community Empowerment Fund (CEF) in Chapel Hill, which seeks to promote financial literacy and help fiscally strained individuals achieve self-sufficiency. Apart from writing, Siddarth enjoys reading, travel, and watching British television programs. Upon graduation, he plans to earn a graduate degree and seek employment in the field of international development.

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