How To Consolidate Bills Into One Payment

If you’re struggling to manage all your monthly payments or would just prefer to make one monthly debt payment instead of several, there are solutions. Debt consolidation lets you combine several monthly payments into one, and can even lower your payments. There are different ways to consolidate debt, each with its own advantages and disadvantages. 

We'll cover how you can consolidate debt, the different types of debt consolidation loans available, and what types of debt are the most advantageous to consolidate.

What debt can you consolidate?

A debt consolidation loan is a sum of money you borrow and then use to pay off other debts. By doing this, you combine all of your debts — and just as importantly, their monthly payments — into one. You may also be able to score a lower annual percentage rate (APR), making your debt more affordable.

There are several debt consolidation methods available for various types of debt. For example, credit card debt can be consolidated using a debt consolidation loan or a balance transfer credit card, while federal student loans are best consolidated with a federal Direct Consolidation Loan.

Types of debt consolidation

The type of debt you’re consolidating can help you determine the best way to proceed. Let’s talk about some of the most common debt consolidation options.

• Debt consolidation loan: A debt consolidation loan is a personal loan used to consolidate existing debt. These loans are typically unsecured term loans in amounts ranging from less than $1,000 to as high as $100,000 (or more), with repayment terms typically available from one to seven years. They're offered by online lenders, banks, and credit unions.
• Debt management plan (DMP): Credit counseling organizations offer these plans to help consumers better manage their debt. When you sign up, the organization negotiates directly with your creditors to lower your APRs and monthly payments. After that, you’ll make payments for the term of the DMP — usually spanning three to five years — directly to the credit counseling organization. It then distributes that money to your creditors.
• Balance transfer credit card: Many credit cards offer a 0% APR on balance transfers for an introductory period, such as 12 to 21 months. This can be a great option for paying off high-interest credit card debt if you're able to do so within the span of the 0% APR period. Most cards charge a balance transfer fee between 3% and 5%, and once the introductory period expires, the APR will adjust to the standard rate. You'll need good credit to be approved for a new balance transfer credit card. If you don't have good credit, check existing cards for balance transfer offers.
• Student loan refinancing and consolidation: If you have multiple student loans, you may be able to refinance or consolidate them. Private student loans may be refinanced or consolidated using another private student loan. For federal loans, it’s best to consolidate with a Direct Consolidation Loan so you don’t lose the government protections that federal loans offer, which include loan deferment, forbearance, and forgiveness.
• Home equity loan: A home equity loan and a home equity line of credit, or HELOC, are two types of loans that allow you to borrow against the equity in your home. Like a personal loan, you can use this money for most purposes, including debt consolidation. Using home equity to pay off other debt has some benefits, including an APR that may be much lower since the loan is secured by your home. However, it also puts your home at risk. If you can’t make your payments, you risk foreclosure.

Learn More: Types of Debt Consolidation Loans

Other options for bill consolidation

The options listed above are some of the most popular methods to consolidate debt, but aren't exhaustive. The methods below are often not advisable, but may be appropriate for some, especially if you have bad credit.

• Tap into retirement savings: If you have a 401(k) or other retirement plan, you may be able to borrow against it and repay the loan over 5 years. While many companies do allow 401(k) loans, they come with major downsides. First, any money you borrow from your 401(k) isn’t invested and potentially growing until it's paid back. And if you lose your job, you may have to repay the full loan amount immediately. If you can’t repay the loan, you may have to pay income tax plus a 10% penalty tax (if you were under 59 ½ when you took out the loan). On the upside, you don't need to qualify based on your income or credit score. You can typically borrow up to $50,000 or 50% of your vested balance, depending on whichever is less.
• Borrow from a permanent life insurance policy: This option is only available if you have a permanent life insurance policy (outside of work) with a cash value. Like a 401(k) loan, you don't have to qualify based on either credit or income — the money is yours. But if you can't pay it back, you risk your life insurance policy and could be subject to taxation.

Related: 401(k) Loan vs. Personal Loan 

How to consolidate bills

If you’re considering a consolidation loan to help you pay off debt, here’s how to get started:

1. Check your credit score: Before you apply for a loan, make sure your credit score is high enough to qualify with that lender — most lenders look for a FICO score of 670 to 739, but you can often check a lender's specific credit score requirement. You can also check your report for any errors and report them to the credit bureaus, which can boost your score. Get a free report using Credible's credit monitoring tool.
2. Research and compare lenders: There are many personal loans to choose from, each with different loan amounts, terms, APRs, and perks. For example, if you need the money quickly, look for a lender that offers same-day personal loans upon approval.
3. Prequalify: Prequalify with several lenders to get an idea of the terms you’ll be offered. When you prequalify, it won’t impact your credit. However, prequalification is not an offer of credit; only an estimate. Your final rate may differ. Note that when you formally apply for a loan, your score may drop by a few points, temporarily.
4. Pick a loan option: Once you’ve shopped around, pick the best loan for you. It’s often the one with the lowest APR, but it’s also important to consider how much you can borrow and how much time you’ll have to repay it.
5. Complete your application: Once you’ve chosen a loan, you can submit your application. During the approval process, you’ll likely have to provide proof of employment, income, and other personal details. 
6. Get your loan funds: Depending on the lender, you could have money the same day you're approved, but most send funds within a few business days of approval. You can then use the money to pay off the debts you’re consolidating. Note that some lenders can pay off your creditors directly, and may offer you a rate discount for doing so.

Debt consolidation loan vs. credit card

Debt consolidation loans are often used to pay off high-interest credit card debt. So you may be wondering — why not just continue making your credit card payments? Here are a few differences between debt consolidation loans and credit cards:

• APR: Credit cards often have high APRs. The average credit card APR was 21.86% in August of 2024, according to The Federal Reserve. Meanwhile, the average APR for a 24 month personal loan was 12.33% in the same month. In other words, it's possible you could get a much lower APR, meaning a much lower payment, by consolidating high-interest credit card debt with a personal loan.
• Compounding interest: Any balance that carried over from the prior month is charged interest on a daily basis. In other words, interest charges become part of your new balance, on which additional interest is charged. This is why credit card balances can increase so quickly. Compounding interest is not a feature of personal loans and other types of installment loans.

Example of debt consolidation

Let’s say you have $5,000 in credit card debt. You have two options: you can either leave the balance on your credit card and pay it off over time or you can use a debt consolidation loan to pay it off faster.

Option 1: Your credit card APR is 20%. If you made just the minimum payment on your $5,000 balance (at 1% of your balance plus interest, that's $125), it would take you 273 months — that’s almost 23 years — to pay off the full balance. Plus, you would pay almost $7,000 in loan interest.

Option 2: Now let’s say you consolidated that credit card debt with a personal loan with an APR of 18%. If you had a five-year loan, you would have a $127 monthly payment ($2 more), but pay the loan off 18 years faster and save around $4,400 in interest.

Even if you couldn’t get a lower interest rate and paid a 20% APR on the personal loan — the same you had on the credit card — your monthly payment would increase by $7, but you'd save about $4,000 in interest and 18 years of payments.

Best debt consolidation lenders

Most lenders offer personal loans for debt consolidation. Prequalify to get a sense of which lenders are more likely to approve your loan application, and the rates and terms you might qualify for.

Debt consolidation loan benefits

Debt consolidation loans come with some major benefits, including:

• Fewer monthly payments: If you’re currently making payments on multiple credit cards, a debt consolidation loan can cut down on your number of monthly payments. Not only is it more convenient, but it can help ensure nothing falls through the cracks.
• Lower APR: One of the biggest benefits of debt consolidation loans is that the APR can be much lower than what you have currently, especially if you're consolidating credit card debt. 
• Lower monthly payments: Thanks to the lower rate, a debt consolidation loan often comes with a lower monthly payment. This could give you the opportunity to either pay off your debt more aggressively or make room for other things in your budget.
• Shorter repayment time: Debt consolidation loans often have shorter repayment times than credit cards. You could save yourself years of payments by switching to a debt consolidation loan.
• Improved credit score: A debt consolidation loan can improve your credit score for several reasons. First, you’ll lower your credit utilization if you're paying off credit card debt. Second, the monthly payments on your loan can help boost your score over time.

Is debt consolidation right for me?

A debt consolidation loan can be an excellent tool to help make your debt more manageable and save you money on interest. On the other hand, this type of loan isn’t right for everyone. For some people, the best way to handle multiple debts might simply be to pay them off one at a time. 

Explore: Pros and Cons of Debt Consolidation

Debt consolidation alternatives

One popular strategy, the debt snowball method, has you pay off your debts in order of balance, smallest to largest. This method allows for quick wins and for you to get rid of your smallest debts to focus on your largest.

The debt avalanche method, on the other hand, has you prioritize the APR on your debt rather than the balance. By prioritizing the debts with the highest APRs first, you save yourself money in interest over the long term. However, it can take longer to pay off your first balance.

Ultimately, it’s up to you to decide which debt payoff method is right for you, whether it’s a debt consolidation loan, debt snowball or avalanche, or another strategy. You can use an online calculator to determine which is the best move for your situation.

Read More:

• How To Negotiate Credit Card Debt
• How To Pay Off $10K in Credit Card Debt
• How To Pay Off $30K in Credit Card Debt
• Debt Settlement Pros and Cons
• Ways To Handle Credit Card Debt While Unemployed