Bad credit consolidation loans are acquired to settle all your existing debts that you are unable to manage. It is very important that you know the advantages and disadvantages of debt consolidation before you decide to consolidate your debts.
Pros:
§ Consolidating debts with bad credit can improve your credit rating. Credit bureaus consider credit cards as “bad debt” because of how long they take to get paid-off. Therefore, your credit score will rise once your consolidation loan wipes them out.
§ Bad credit consolidation loans will be easier to manage. You will only make one payment a month.
§ You can live a comfortable life while paying your debts because of the substantial decrease in the monthly payment you have to make.
§ You will have enough time to manage your finances because it stretches the time you have to pay the loan.
§ You will be able to efficiently pay your monthly obligation because of the considerable reduction on your monthly payment thus improving your credit score.
§ Lower interest rate compared to what credit card companies charge you.
§ Gives you a greater chance to be debt-free than making the minimum monthly payment on your debts.
§ You will have a fixed monthly obligation with a fixed number of years to pay it.
Cons:
§ Bad credit consolidation loans are not easy to obtain if you have bad credit rating.
§ It will take you a considerable amount of time for you to be debt-free.
§ Though the interest rate is lower it can double-up the amount of your principal loan because of the long-term payment period.
§ Risk of acquiring more debt if you still fail to manage your finances e.g. continuous use of credit card.
§ If you consolidate your debts using a secured loan, you may lose your property if you fail to meet your obligations.
§ You will have to pay fees and charges to the broker/lender for their services.
Debt consolidation loans can be an effective way of getting out of debt. But if you are looking for the quickest and least costly way to get rid of your debts, debt negotiation can be your best option. Debt negotiation is the process of negotiating with your creditors to reduce the balance of your debt.
This program is designed to help you settle your debts in 2 – 4 years time. It can reduce the balance of your debt as much as 60%. It can also lower your monthly payment you have to make.
Now you know what are the advantages and disadvantages of bad credit consolidation loans. You should study and weigh your options. Remember that consolidating your debt does not eliminate your debts. It will only help you manage your finances.