Bill Consolidation Step #3: The snowball effect Some of your bills will likely involve long-term debt. As a result, like many borrowers, your bill consolidation efforts probably don't have enough funds to pay off these debts in full right away. Instead, the particular debts have to be serviced, or paid down in monthly amounts, including interest charges. However, this is where your work in Step #1 comes in handy. By squeezing down your controllable expenses, you've probably produced savings. Now you have some extra room financially to work with. It may seem tempting to then just use these funds for play money. Don't do it. The extra cash now gives you an ability to gain some ground on debt bills. But you don't want to split it up over every debt bill. The effect will be useless pixie dust in getting ahead. Instead, you want to pay the minimum you have to on each debt bill. Take the savings and lump it together in one monthly extra payment on the smallest debt bill you have. This approach, called a "snowball" effect, will aggressively pay down the targeted debt. Once it is paid off, you move to the next one and pay it down. Not only will your debt bills get smaller, but so will your interest charges. In doing so, your bill consolidation efforts will reduce your debt bills one by one in a very visible way. Transferring Balances One thing about balance transfers that make them a problem is that they don't actually pay off any bills. A balance transfer does contribute to bill consolidation, however. The concept of the transfer is that you are shifting balances from other loans or credit card accounts into one account total. This essentially requires the target lender to agree to taking on your loans from other lenders. Many credit card companies are willing to take on new business from old loans up to a point. Much depends on your credit score and credit history. With a balance transfer, you effectively reduce the number of bills you get from different debt lenders. Instead, you get one bill to pay to the credit card company every month. If you do the transfer right, you may even be able to move the loans to an account with a smaller interest charge, allowing you pay more money towards the combined debts rather than useless interest charges. Where bill consolidation via account transfer goes wrong is when payers move the funds out of old accounts and then re-use the old accounts instead of closing them. The effect then goes south in that the jumbo loan now exists, and the payer is incurring new bills and new debt on the old, paid- off accounts. The whole benefit of an account transfer then gets nullified with the creation of more bills. Next - Commercial Services Copyright 2011 BillConsolidationGuide.com Previous- Step Two .com A Common Sense Approach to Bill Consolidation Home Financial Discipline Folding them Together Snowball Effect Commercial Services Privacy Policy