09
Nov
2011

Feeling overwhelmed in debt can cause depression, a feeling of helplessness, as well as affect your family and everyday life. The main purpose of debt consolidation is to help you regain control over your life, finances and avoid having to file bankruptcy.

Benefits of consolidating debts

1. Lower your interest rates and monthly payments.
2. Lower your stress levels
3. Improve your life
4. One payment. This makes it much easier to keep track of everything.
5. Learn from your mistakes. Towards a debt free future that includes a financially stable lifestyle.

 Can debt consolidation be bad? (e.g. will it result to a bad credit record?) Why?

It all depends on how you do it.

If you are just consolidating your debt by getting a single loan to replace other loans, then the impact should be very little. In effect, it is good to your credit rating.

If you use a place that consolidates your debt by asking credit card companies & the like to reduce your debt or interest rate, then yes, it could be harmful to your credit rating.

Example: The Balance Transfer Trap

Low-interest balance-transfer cards are very popular these days, but remember that those rates only last a few months and then you have to switch cards again. The danger is that at some point all this activity begins to show up on your credit report, and you start to look like a bad risk. Then if you get turned down one day, and you could be ended holding the high-interest card you were hoping to switch.

If you think you can benefit from the balance-transfer for a few months, just make sure you formally close all your accounts yourself, and then notify the credit-card company to mark the account “closed at customer’s request.” Otherwise, on your credit report, it will look like the creditor closed your account if any.

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