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Bad Credit Consolidation: Pros and Cons

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There are a large number of individuals interested in repairing their credit. However, few people among this number actually know the pros and cons of specific methods for achieving this type of financial repair. There are many available options for repairing credit, but the most often cited method is debt consolidation. This option is a double-edged sword that can be as hurtful as it is helpful if the indebted individual does not enter into the scenario with full knowledge of what they are getting into.
Debt consolidation is a method of financial repair which allows the borrower to repay their old debts and clear them off of their credit report. Sometimes, with proper negotiation, a lender or creditor might remove the account altogether. Usually, however, the account merely states paid in full and is closed.

There are many positive and negative benefits to debt consolidation. The most common positive and negative occurrences are:

Pros:

  • The remaining debt is only for the amount of the loan. The monthly payments on this loan are generally much smaller than the total amount of repayments on the original debts.
  • The indebted individual will be able to repair their credit slowly with old accounts closed or paid up to current dates.
  • The individual will only have a single monthly payment to make, simplifying their financial burdens.

Cons:

  • The individual’s credit score can actually drop for a short time since all of their older accounts will be closed rapidly.
  • In some instances the individual will have a lot of small debts. If this is the case it might be simpler to just pay those debts off one at a time. Once a debt is ninety days past due and in collection status it really cannot do too much more damage to a credit score.
  • The borrower needs to be savvy in regards to debt consolidation lending practices and interest rates. These types of loans may end up costing the borrower far more in the long run due to the cost of the loan and fees.

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