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You may consider consolidation credit options for debt help when you owe multiple lenders and cannot meet those financial obligations. Consolidation is different than other types of debt assistance because it involves paying off these various debts with one new loan. Typically, the new loan is offered through a consolidation agency that works with individuals with bad credit to extend better than average interest rates to those in need. The process should only be considered if you are a good candidate based on a number of factors.
Multiple Debts
Your new consolidation lender will pay off your existing loans. Often, they will also negotiate the loan amount and pay-off a lower balance than the amount you currently owe. This means you will erase a portion of your debt in most cases. You will then pay one payment to the consolidation agency rather than other lenders. Some consolidation agencies have relationships with a number of lenders, such as local banks, that allow them to achieve lower payoffs than you could achieve on your own.
No Other Options
Entering debt consolidation and settlement discussions will make a lasting impact on your credit score. It will take years to rebuild your credit. If you are able to lower your monthly payments to lenders independent of a using a collection agency, you can rebuild your credit faster. Try contacting your lenders, without using an agency, before approaching a consolidation company. You may also consider a high-risk personal loan to allow you to rebuild your credit score without entering settlement or consolidation talks.
Ability to Make New Payments
You need to be able to make the payments to the consolidation agency. If you have lost your job, have suffered a fiscal emergency, or have any reason to believe you will not be able to make the payments, this option will not be good for you, because you will be in higher debt. The new loan will be a sum of your existing debt and the monthly payments can be high. Be sure to properly track your monthly budget and only agree to payments you feel comfortable with.
Not a Candidate for Bankruptcy
Bankruptcy is a scary concept for a person to face. However, if you are a candidate for bankruptcy based on your financial situation, this may be an indication you are not fiscally healthy enough to meet your current debt obligations. The point of bankruptcy is to legally alleviate you of your debts. Of course, bankruptcy will hurt your credit score even more than consolidation talks. You may try to avoid bankruptcy for this reason alone. Nonetheless, if you have received advice or are a candidate for bankruptcy, you need to consider whether you will be able to make the new payments in your current condition.
