subject: There Are Bad Credit Debt Consolidation Solutions [print this page] Credit consolidation programs have a history as one way a consumer can address overwhelming debt. The principle is fairly simple. All outstanding credit debt is rolled into one monthly payment and the accounts are paid off as a single entity rather than numerous ones. While it seems like a logical plan, it very often leads to a worse financial situation.
When bad credit debt consolidation happens, it is usually because the consumer opts to take out a loan to pay off unsecured bills - or loans. By the time a loan like this is necessary, the consumer's credit rating has already taken a good hit so the interest rate on the loan may not be very favorable. On top of that, the loan will require collateral, and that means either a second home mortgage or a home equity loan. In either event, what was an unsecured loan becomes a secured one.
If a loan is necessary, the consumer should do rate comparing as well as looking at how the rates are on larger and smaller loans. The amount borrowed can directly effect the amount of interest rate. There are different tiers of interest rates and the difference in just a few dollars can see huge changes. There are often penalties for redeeming the loan too soon, and that should be a factor in choosing too.
While not all loans are bad credit debt consolidation, many are. Adding a bigger personal loan at a time of financial crisis just doesn't make common sense. And, there are other solutions out there. The smart consumer will investigate both debt settlement and debt management depending on their circumstances. These methods work by renegotiating the principle amount of debt, and reducing it along with interest rates. In both of these cases, obtaining another loan is not necessary, and the debts can certainly be paid off quicker than with the consolidated loan. Home equity and second mortgages can be for as long as ten to twenty years, and that's a long time to be paying off credit card debt. Just add up the interest paid over that amount of time, and it is frightening.
The theory is to get out of debt, and as quickly as is possible. Bad credit debt consolidation does not do that. It puts the consumer into even more arrears for years while other programs can see them free of debt within twelve to thirty-six months. There's an old saying that good money shouldn't be send after bad, and there's no instance where it is more true than in personal debt.
