Debt Consolidation: Is It Right for You & What Are Your Options?

If you’re drowning in credit cards and other debts, at this point, it’s natural to start looking at debt management options. One of them is debt consolidation. Debt consolidation is one method for managing all your debts in one single repayment schedule instead of many. 

But is debt consolidation a good idea? This article will discuss your debt consolidation options so you can see if it’s right for you.

Debt Consolidation Through a Personal Loan

A personal loan is one way to consolidate your debts. It’s an unsecured loan, which means your assets are not used as collateral. Therefore, lenders are more comfortable extending loans to those with a shorter credit history or lower credit scores. However, a personal loan does not remove your obligation to repay the borrowed funds. If you default, your lender can pursue the same collection actions that you’re currently receiving.

A personal loan is preferable if you have multiple debts to pay off and you can maintain a credit card balance. It also allows you to keep your existing credit cards, making it easier to maintain your credit score.

However, a personal loan is not the most beneficial debt consolidation option. The interest rate on personal loans is usually high, and it compounds monthly. Your repayment period is generally longer than that of other loan types.

Debt Consolidation Through Debt Settlement Companies

Debt settlement companies may appear to provide a great way to eliminate all your debt. They advertise their services as a way to provide debt relief without affecting your credit score. But in fact, you’ll have to pay your settlement company for their debt relief services.

Debt settlement companies work by negotiating with your creditors for lower payments and a settlement on your outstanding debts. However, debt settlement companies often do not pay all your debts in full. The debts you paid in full may not be reported to a credit reporting agency. Therefore, they don’t truly eliminate your debt; they merely consolidate it.

Debt settlement companies can be helpful if you have a good payment history with your creditors. This can improve your condition and help you receive better settlements. But if you have a poor payment history, your situation will only worsen. As mentioned, the debt settlement company will have to negotiate payment with your creditors, who will give you a meager settlement offer because of your previous late payments.

Simply put, debt settlement companies are not a good debt management option if you have a history of late payments or other debts.

When Is Debt Consolidation the Right Solution?

Debt consolidation is only an ideal solution for you if you consider the following:

  • You cannot see a way out of your debt troubles and need a fresh start
  • Your debt amounts are significant
  • You’re using your credit cards responsibly unless you’re using a credit card to make ends meet
  • You have a credit score of 649 or higher
  • You can pay off your debt
  • You have the will and the discipline to stick to a debt management plan
  • You need to use your credit card to make ends meet
  • You aren’t able to pay off your debt
  • Your only way out is by declaring bankruptcy
  • You don’t have the money to pay for a credit restoration program

Debt consolidation options can be an excellent way to manage your debt and get it under control. However, debt consolidation is not a practical solution if you have a poor repayment history, you’re not able to make payments, or you’re paying your debt with a credit card.

Make the Right Decision

Debt consolidation is a good option for making payments on your debt and keeping your creditors at bay. However, it is not a good debt management solution if you need to use a credit card to make ends meet. Before considering debt consolidation, take a good look at your current situation.

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