Should You Consider a Debt Consolidation Loan on Bad Credit

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If you are in deep with your credit cards, should you consider getting a debt consolidation loan? First, let’s be certain we understand what this sort of loan is. A debt consolidation loan is provided by a bank, lending company, debt consolidation company, or other creditor to help you put all of your debt into one monthly payment. Often, most of the money is sent directly to creditors, so that it can be determined that the loan is actually going to be used to cover your debts. What are some potential benefits of this type of loan, and what are some potentially negative affects? Read on to be able to make an informed decision.

Let’s consider the advantages first. It can be disheartening to receive several different credit bills every week besides your other necessary expenses. Having only one monthly payment to make can lighten some of the load. You also don’t have to worry about a bill slipping through the cracks since there are so many on your desk. You simply make the one payment per month and watch as your debt gradually dwindles.

So what could possibly be bad about this scenario? There are a few possible downsides to consider. First of all, a debt consolidation loan will hurt your credit score. It basically shows that you got in over your head and needed help to get out. Don’t expect to get any new lines of credit for a while since you already needed help with your old ones. Another negative is that if you are having credit problems then the likelihood of your debt consolidation loan having a decent interest rate is pretty slim. You may actually pay more interest in the long run. This is a trade off, however, because if you end up paying off the debt faster due to the loan then you may make up for the higher rate by not paying interest for as long.

So now you have to choose which is best for your situation. Would you rather have the peace of mind of only having one bill and a definite payoff date in sight? Or do you prefer to have all the little bills, but realize that you are maintaining your credit score as long as you pay them on time, plus you are probably paying less per month in interest on cards that were establish back when you had better credit? Your particular circumstance will determine what is best for you.

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