Do You Need Consumer Credit Consolidation Services?

Consumer credit consolidation services can assist you with negotiating down your debt from multiple lenders to one new monthly payment. The credit consolidation services will pay off your existing debt, and you will begin paying off the service. This type of credit repair is like refinancing multiple loans at once. Because the company offers to pay down the debt in one lump sum, often the lenders will negotiate a lower payment than what you truly owe. This allows you to ultimately pay less, but your monthly payments may remain high. To determine if this is a good option for you, ask yourself the following questions:

Am I Carrying too Much Debt?

Determining if you have too much debt is a subjective process. Many consumer credit counseling services will tell you anyone carrying over $10,000 of debt is eligible for consolidation. However, it is better to use a formula expressing the debt as a proportion of your total assets. If more than 30% of your total net worth is negative, then you may be in trouble. This may only be $3,000 for some people. Any time you can no longer afford your debt payments, you are a candidate for credit & debt management.

Is My Debt from Multiple Sources?

Consolidation is only an option if you have debt from multiple sources. Usually this means more than three, but some people with only two payments may qualify. If you have too much debt from one source, you may be a better candidate for a one-payment negotiation than consolidation. Many credit service companies offer both forms of help.

Can I Repay the Debt on My Own?

Paying down debt is hard. If it is possible for you to manage your own debt, though, you should pursue this option. Working with a credit consolidation company will damage your credit score. You may also have large penalties on your record for paying down your other debt early. Interest rates on your new loan will be very high despite the savings you will make in paying down your debt and consolidating. Ultimately, working through the process yourself is a healthier situation for you in the long run. Only seek consolidation if you absolutely cannot afford to pay down the debt.

Can I Afford Monthly Payments?

You will have monthly payments to the credit service once your debt is negotiated. This means you will be making one monthly payment, but it may be high. You may need to consider bankruptcy if you cannot afford any payments at all. For example, if you have lost your job or suffered other financial hardship, bankruptcy may be the only option for you. Debt consolidation is designed to get you out of debt; however, it only works if you can make your new payments.

What Happens if I Default?

Defaulting on the new loan will cost you dearly. First, you will see your credit drop significantly. Then, any assets you have placed as collateral to secure your loans are subject to seizure. At that point, the only option may be bankruptcy. Only enter debt consolidation programs if you are committed to doing what is necessary to pay down your debt.

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