Debt consolidation has many advantages and disadvantages. There are many things to consider before deciding to consolidate owed debt into one lump sum. An advantage is that consolidating debt does help the debtor obtain a more affordable payment. On the other hand, a disadvantage is negative scores or credit ratings from the lending companies.
Bank Debt Consolidation
Bank debt consolidation is a process where a debtor seeks a bank to assist in consolidating sums of owed money into one affordable monthly payment. Banks offer second mortgages and home equity lines of credit as debt consolidation solutions. These types of consolidation require the debtor to have some type of collateral in case the loan is defaulted or goes unpaid. The only way to get one of these credit lines is to have a bank appraisal of the house done or have a mortgage that is paid off or not underwater.
Debt consolidation companies
The other option that exists for debt consolidation is to seek out a debt consolidation companies. There are many debt consolidation companies, but not all are reputable and trustworthy. Listed are a couple of things to keep in mind when looking for a reputable consolidation company. According to ftc.gov website, "Reputable credit counseling organizations can advise you on managing your money and debts, help develop a budget, and offer free educational materials and workshops." The site also states, "If possible, find an organization that offers in-person counseling such as universities, credit unions and branches of the U.S. Cooperative Extension Service."
Bad Credit History
A bad credit history is a difficult hurdle to overcome. Anyone with a bad history can count on a few things to occur in life. Getting a new loan is costly, as the loan interest rate will be very high, if a loan is even an option, as many people with a bad credit history will not be able to get a loan at all. A bad credit history will prevent a person from getting things such as cell phones, a new car, a house, car insurance, credit cards, utilities, and many other essential things in life. Again, if these things are attainable expect extremely high interest rates and added charges.
Bad Credit Solutions
There are ways to try and fix bad credit. One way is to pay off any current debt and apply for a secured credit card at the local bank or credit union. A secured credit card is a prepaid credit card; the cardholder pays a collateral sum of money or uses a personal item for collateral. The card is given a limit and the holder is free to use it at will. The purpose of the card is to buy something and either pay it off at the end of the month or carry a very low balance to try and rebuild the damaged credit history and score. Credit repair can take months to years, so don't expect any changes in your credit rating overnight.
Warning
When seeking any type of debt consolidation be careful with the company chosen. According to the ftc.gov website, "be aware that, just because an organization says it's 'nonprofit' there's no guarantee that its services are free, affordable, or even legitimate. In fact, some organizations charge high fees, hidden fees, or urge customers to donate money for the received services." Further, any form of debt negotiation is reported by credit agencies and shows up on a debtor's credit history negatively. Just because a consolidation occurred don't think every party involved is happy, as the credit company is losing a lot of interest money. Research a company before starting any debt consolidation program. Look the company up on the Better Business Bureau.
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