Tuesday, March 19, 2013

Understanding the Pros and Cons of Debt Consolidation

When it comes to the American Dream, at its core, you will find the hope of being debt free. No one goes to college, works all their life, only hoping to find him or herself completely broke once life is coming to an end. Everyone has hopes of leaving some type of financial legacy to their children and loved ones. This legacy might not be worth a million dollars, but leaving debt to children and loved ones is definitely out of the picture. 

So, how do debtors go about getting themselves out of debt? Especially those debtors who have found their selves in deep debt? Well, there is good news! Debtors can take part in debt consolidation programs to rid of their debt. These types of programs have helped thousands of debtors reach financial independence.

What is Debt Consolidation?

When debtors take part in a debt reduction system by combining all of their unsecured debts into a single debt, this is known as debt consolidation. People who obtain this type of consolidation are able to eliminate the need to send out numerous debt repayments every month. Instead, they are enabled to make a single payment on a monthly basis. The consolidation company that accepts the payment then disburses the payment to a person's creditors.

Understanding the pros and cons of debt consolidation will give a person a better insight as to how this type of consolidation works; this understanding can also help a debtor decide if this form of consolidation is something that he or she would be interested in obtaining.

Pros of Debt Consolidation

If a debtor has his or her debt consolidated, he or she will significantly benefit from having a lowered interest rate. In fact, most consolidation companies will bargain with creditors, getting them to enforce an interest rate that is quite a bit lower than what a debtor is accustomed to paying. Not only does this reduction in interest rates decrease the amount of money a debtor pays to a creditor each month, but it also lowers the overall amount that is to be paid off. Since payment amounts are decreased, debtors are usually better able to afford their monthly payments, which reflects positively on their credit reports. Furthermore, a reduced interest rate decreases the amount of time that it will take the creditor to pay off his or her debt.

Cons of Debt Consolidation

When a debtor first enters into a consolidation program, he or she will likely suffer from a small decrease in their credit score. The exact amount of decrease that he or she will endure is largely determined by the program that he or she enters into. While this may seem like a major con, it should not be forgotten that the reduction is only temporary. Once the consolidation program has been completed, a person will see his or her credit score greatly increase. 

Another con associated with getting debt consolidated is that a payment cannot be missed. If a payment is missed, a debtor may endure severe consequences. Every program has its own ramifications; however, for most, if a person misses a payment, he or she will probably receive an increase in the consolidation program's interest rate. At the worse, a debtor may even be kicked out of the program.


There are many institutions that offer different types of consolidation programs. These types of programs are especially advantageous to people who are trying to steer clear of filing bankruptcy. Generally, in order to qualify for a program, a debtor will need to have at least $10,000 worth of debt. If a person is interested in a consolidation program, he or she should speak with a consolidation specialist to see what his or her exact options will be.


  1. I recently have been looking into companies that will buy settlements. I wasn't considering the subject very seriously until I got out of college and took a look at my loans. Yikes! I'm definitely going to have to reconsider something if I ever plan on getting out of debt.

  2. Hmm, credit consolidation seems like a really good public service.