By the time debtors seek out debt relief help such as credit counselling or debt consolidation, their credit rating is usually in bad shape. Most have not made a payment on one or more of their debts for several months, and they can be in a state of semi-despair, believing that they will never get out of debt. Some people even think that the only debt solution they will qualify for is a consumer proposal that their creditors accept or personal bankruptcy, both of which ruin an individual’s credit for several years.
Fortunately, even those with poor credit have less drastic debt relief options available to them. One of these is debt consolidation.
Why Debt Consolidation?
Debt consolidation is generally advantageous for individuals who owe less than $10,000 in consumer debt. That is because debt consolidation does not typically hurt your credit history very much (if you make your payments on time the only affect to your credit will be the first ding taken when you apply) and because other programs such as debt settlement may not make it worth your while in terms of savings when you owe less than $10,000.
Why Do You Save Money with Debt Consolidation?
Debt consolidation saves you money because it allows you to pay off your existing debts with one loan. At the end of the process, you usually have a lower average interest rate, and you are left with one monthly payment that is easier to keep track of.
Debt Consolidation and Poor Credit
Most people who have a bad credit history can get a debt consolidation loan as long as they have enough money to make the minimum monthly payments on their new debt. Of course, the interest rate you pay on a consolidation loan increases as your credit score decreases, so you have to keep in mind that you will pay more for consolidating your debt if you have a bad credit history than if you have a good one.
Lenders vary as to their willingness to lend to individuals with poor credit. If you are considering debt consolidation, it is sometimes a good idea to consult your own bank first. Because of your existing relationship with them, you may find it easier to get a lower interest rate there than from other institutions. Still, if your rating is poor enough, you should expect many creditors to deny your application for a consolidation loan.
Debt Consolidation vs. Debt Settlement
Before you make your final decision as to whether a debt consolidation loan is right for you, it is a good idea to compare debt consolidation with a debt settlement program. With debt settlement you can often get your creditors to lower both your interest rate and your loan principal, thereby ensuring that your savings on your consumer debt is even greater. You will likely end up debt-free more quickly, and you will have more money left in your pocket. The drawback of debt settlement is it does harm your credit score more significantly, making getting approved for loans later on more difficult.
To find out which debt relief program will get you out of debt quickly, fill out the debt relief form on this page for more information about your options.