Down side to consolidating bills

They also tend to have higher interest rates and lower qualifying amounts.

Even so, the interest rates are still typically less than the rates on credit cards. “Typically, the loan has to be paid off in three to five years,” says Harrine Freeman, CEO and owner of H. Freeman Enterprises, a credit repair and credit-counseling service in Bethesda, Md., and author of “How to Get Out of Debt.” These types of loans don’t erase the debt; they simply transfer all your debts to a different lender or type of loan.

Even if the monthly payment stays the same, you can still come out ahead by streamlining your loans.

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Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.

If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.

There are also several consolidation options available from the federal government for those with student loans.

Theoretically, any use of one form of financing to pay off other debts is practicing debt consolidation.

One is to consolidate all their credit card payments onto one new credit card – which can be a good idea if the card charges little or no interest for a period of time – or utilize an existing credit card's balance transfer feature (especially if it's offering a special promotion on the transaction).

Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.

Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.

There are several ways consumers can lump debts into a single payment.

Although each lender will probably require different documentation depending on your history, the most commonly required pieces of information include a letter of employment, two months' worth of statements for each credit card or loan you wish to pay off, and letters from creditors or repayment agencies.

If you have a good payment history with a bank, credit union or credit card company, asking that institution about a debt consolidation loan should be your first step.

Secured loans are backed by an asset of the borrower’s, such as a house or a car, that works as collateral for the loan.

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