What Is Bill Consolidation?

Bill Consolidation
BY Rebecca Lake
Aug 1, 2022
 - Updated 
May 31, 2023
Key Takeaways:
  • Bill consolidation means combining two or more loans into one.
  • You can consolidate bills by taking out a new loan and using it to pay off existing loans.
  • The new loan should have a lower interest rate or payment to make sense.

Paying multiple debts each month can test your organizational skills as you track different due dates. And it can feel like all of those payments don’t reduce your balances much. 

Consolidating bills with a personal loan can simplify debt repayment and save you money if you can secure a low interest rate.

Bill consolidation can provide some financial relief if you're ready to get control of your debt. Understanding how loans for bill consolidation work can help you decide if this option is right for you.

What Does It Mean to Consolidate My Bills?

Bill consolidation is a process in which you combine multiple debts into one. It's also referred to as debt consolidation or loan consolidation. 

So how does bill consolidation work?

The simple answer is that you take out a consolidation loan, then use the proceeds to pay off debts. You then make one payment each month to the bill consolidation lender.

The kinds of debts you can pay off with a bill consolidation loan include:

  • High-interest credit card balances

  • Unpaid medical bills

  • Unsecured loans or lines of credit

  • Outstanding vehicle loans

  • Federal and state tax debts

Loans for bill consolidation aren't designed to pay off government-backed student loans. Instead, student loan borrowers can look into federal debt consolidation programs or private refinance loans to manage those obligations.

The interest rate for a bill consolidation loan can be fixed or variable. Your interest rate depends on your credit history, income, loan amount, and how aggressively you shop for the best bill consolidation loan.                     

Remember that bill consolidation isn't the same as debt settlement or debt resolution. 

Debt settlement involves negotiating agreements with your creditors to pay less than what's owed. You may negotiate yourself or work with a debt relief company to reach an agreement on a settlement amount.  

With debt resolution, an attorney negotiates with your creditors on your behalf to develop a reasonable plan for repaying your debts. For example, debt resolution may result in reduced interest rates, waived fees or a lower monthly payment. 

Pros and Cons of Bill Consolidation

Bill consolidation can make sense when you need help handling your debt. But it may not be the right solution for everyone.

If you're considering a bill consolidation loan, here's a closer look at the advantages and drawbacks. 

Bill consolidation pros

  • Streamline monthly payments. Consolidating bills can make repaying debt easier since you have just one payment each month. That means you have less to keep up with and it can reduce the risk of paying late, which could damage your credit score. 

  • Interest savings. You should look for a bill consolidation loan with a lower interest rate than what you're paying on your debts. Qualifying for a low rate could save you money on debt repayment over the life of the loan.

  • Manageable payments. Bill consolidation loans can offer flexible repayment terms. Stretching out the repayment lowers your payment and can make your bills more affordable. Understand that extending repayment does increase your overall interest expense.

  • Credit score boost. Consolidating debts with a bill consolidation loan could raise your credit score. Thirty percent of your FICO score is based on credit utilization or how much of your available credit you're using. Shifting debt balances from your credit cards to a single loan could improve your utilization ratio and raise your score. 

Bills consolidation cons

  • Approval is not guaranteed. Your ability to get a loan for bill consolidation depends on your credit and income. If you don't meet a lender's qualification requirements, you won’t get a bill consolidation loan.

  • Low rates are not guaranteed either. Bill consolidation loans offer a range of interest rates, depending on your loan type. The rates you're offered may equal or even be higher than the rates you're paying on your debts now.

  • Not a magic bullet. Consolidating bills is only effective when you're committed to paying off debt. If you take out a debt consolidation loan to pay off credit cards, then charge up new balances, you're not solving any problems. Instead, you may be creating new ones since you’ll have even more debt to repay.

Types of Bill Consolidation Loan

If you're interested in loans for bill consolidation, there are several options. They have a range of maximum loan amounts, repayment terms, collateral requirements, interest rates and fees. 

Here are four possibilities for consolidating bills with a loan. 

Personal loan

You can take a personal loan for almost any reason, including debt or bill consolidation. (Many personal loan providers have an exception for student loans, however, and don’t allow you to use them to refinance educational borrowing.)

When approved for a personal loan, you get a lump sum of money that you can use to pay off and consolidate debts. You pay back the personal loan with interest according to the repayment schedule set by your lender. 

Personal loans for debt consolidation are usually unsecured, meaning you don't need any collateral. The amount you can borrow depends on the lender. Some lenders offer bill consolidation loans up to $100,000. 

Rates are typically fixed, though it's possible to find lenders that offer loans for bill consolidation with variable rates. You may pay fees for a personal loan, including origination fees or prepayment penalties. 

Home equity loan

A home equity loan allows you to borrow against the equity in your home. Equity is the difference between what you owe on the home and what it's worth.

Home equity loans are mortgages secured by your property. If you default on the loan, the lender could initiate a foreclosure proceeding against you. That's the most significant risk or drawback associated with home equity loans. 

The upside is that home equity loans tend to have low, fixed interest rates, so your monthly payments are predictable. Loan terms can range from five to 30 years. The sooner you pay off a home equity loan, the better since that minimizes what you pay in interest.


A home equity line of credit or HELOC is another way to borrow against your home equity. Instead of a lump sum, you get a revolving line of credit that you can draw against as needed. This could be helpful if you don’t plan to consolidate your debt all at once with a lump sum. 

One characteristic of HELOCs is that during the first few years (called the draw or withdrawing period), your minimum payment is just the interest charged. If you expect higher income later and need breathing room now, this can be helpful. But the flip side is that eventually, you’ll enter the repayment phase, and your payments can spike dramatically. 

HELOCs usually have variable, rather than fixed, interest rates. Many lenders have begun offering fixed-rate HELOCs instead of home equity loans, however. If you borrow a lump sum to consolidate debt, these loans behave much like fixed-rate home equity loans.

Balance transfer credit card

A balance transfer credit card is also a revolving line of credit. Borrowers use them to get an interest-free period in which every dollar they pay goes toward reducing their balance.

When you transfer a balance, you move it from one credit card to another. The new credit card usually offers a low or 0% annual percentage rate (APR) for a set time frame. The promotional rate period may be anywhere from six to 24 months.

During that time, you pay no interest on transferred balances. That can be a great way to save money while consolidating bills if you can pay the balance in full before the introductory rate ends. 

Balance transfer credit cards charge a 1% to 5% fee to move balances. This fee gets added to the balance you repay, so it's essential to shop for the best deal before opening a balance transfer card. 

How to Consolidate Bills

The process for combining bills with a consolidation loan is pretty straightforward. Follow this simple checklist if you'd like to consolidate bills with a loan.

  1. Organize your bills. Make a list of the bills you want to consolidate, including the creditor name, account number, balance, interest rate and monthly payment.

  2. Choose a loan option. Whether you opt for a personal loan, home equity loan, HELOC or balance transfer credit card depends on how much you owe, whether you own a home and which type of loan you have the best odds of getting.

  3. Compare loan options. Once you decide what kind of loan you want, take time to shop. Compare borrowing limits, interest rates, fees and loan repayment terms. If you're looking at balance transfer credit cards, check the promotional rate, balance transfer fee and how long you'll have to pay off the balance before the regular APR kicks in.

  4. Apply for a loan. You can apply for bill consolidation loans online in minutes. You'll need to provide personal information and proof of ID. You may also upload bank statements or pay stubs. 

  5. Accept the loan offer. Once a lender approves you for a bill consolidation loan, you'll have a chance to review the loan terms. You can decide whether to accept the offer or not.

  6. Receive funding. If you accept a bill consolidation loan offer, the lender will deposit the proceeds into your bank account. That can take a few business days, depending on the type of loan. 

  7. Pay off your debts. Once the proceeds from a debt consolidation loan hit your bank account, you can use the money to pay off your bills. If you're transferring balances with a credit card, the credit card company will handle the transfer for you.

  8. Repay the consolidation loan. If you've consolidated your debts, the final step is paying off the consolidation loan. Again, you'll make monthly payments according to the schedule set by the lender. 

Successful bill consolidation is more than restructuring your accounts. You must avoid running balances back up or the strategy will backfire.

Frequently Asked Questions

Can I get a bill consolidation loan with bad credit?

It's possible to get a bill consolidation loan with bad credit. A lower credit score may result in a higher interest rate, however. You may want to look for secured financing if you have collateral to offer since that could help you qualify for a better rate. 

Is bill consolidation the same thing as debt consolidation?

Bill consolidation and debt consolidation are the same thing and are often referred to interchangeably. Both have the same goal: to combine multiple debts or bills into one monthly payment. 

What kinds of bills can you consolidate?

You can use a bill consolidation loan to combine most types of debt, including credit cards, medical bills, car loans or personal loans. If you have student loans, federal or private, you may want to look into debt consolidation or refinancing options designed specifically for those types of debt. 

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