Debt consolidation is one of most popular debt solutions used by many debtors to relax their debt level while they work their way to debt relief. But do you know that debt consolidation is may not fit for everyone. Don't rush to consolidate your debts until you understand the pros and cons of each debt consolidation option and choose the one that best fit you.
Basically, you have two common options to consolidate debts. You may get a new loan to pay off your existing debts or your get a service from a debt consolidation company to help consolidate your debts, which does not involve a consolidation loan. You should always check out the pros and cons of each option before you decide which one is right for you.
Consolidate With A Loan
Advantages
If you consolidate debts with a consolidation loan, you can immediately eliminate multiple debt payments and just focus on one loan repayment.
By getting a new loan to payoff your existing debt, you will immediately stop the debt collection action. No more harassing phone calls or sudden visits from debt collectors.
It won't hurt your credit rating; instead it may help to improve it. By paying off your debts with a loan, you eliminate all negative impacts such as late payment causes by overdue or financial charge due to over limit.
Disadvantages
You need to qualify for a loan or mortgage. If you have low credit score, you are not easy to find low interest loan or mortgage.
You may put your home at risk if you use it to pledge for a low interest rate loan. If you default the loan payment due to any reason, you may lost your home.
By consolidate debts with a loan, you are not actually eliminate your debts, instead you just do a reconstruction on your debts.
It may give you false sense about your debt situation because you may think that you have paid off your debt, but in actual fact, you just reconstruct your debts into a loan.
Consolidate Debts From A Debt Consolidation Service
Advantages
You can immediately reduce on your monthly payment. Normally the debt consolidation company will help you to negotiate with your creditors to reduce the monthly payment so that the amount will be within your financial affordability.
You also will relief from harassing debt collection actions.
A professional person assigned to manage your debt.
Disadvantages
Your debt need to meet the minimum qualified debt amount in order to be able to use the service from a debt consolidation company.
The debt consolidation service only deals with unsecured debt. So, it won't help in get rid of your total debts if you have secured debt.
You may not consolidate all unsecured debts because some of them may not qualify for consolidation.
It may cause negative impacts on your credit rating and affect your overall credit score.
There is not one consolidation option that fit everyone. You need to choose one that best fit your financial situation after reviewing the pros and cons on each debt consolidation option.
By: Cornie Herring
Cornie Herring is an author who writes on various finance related topics. To find Online Debt Consolidation [http://www.debt-consolidation-1stop.info/Benefit-Of-Debt-Consolidation.php], Consumer Credit Counseling [http://www.debt-consolidation-1stop.info/Consumer-Credit-Counseling.php] and other debt solutions visit debt-consolidation-1stop.info
