Being stuck with debt problems can lead one to despair. Nevertheless, there are still viable options that you can take to recover from debt problems. On extreme debt cases, a credit counselling agency may recommend debt consolidation. But what are the possible effects of debt consolidation? Would it leave a negative mark in your credit report? What are the consequences of debt consolidation that you should know about?
Effects of Debt Consolidation
Can debt consolidation really affect your credit report? The answer is yes. In fact, credit consolidation can dramatically pull down your credit score. However, the effect is not meant to be permanent. Although you may experience a sudden drop in your credit rating, there are steps that you can take to improve your credit while recovering from your debts at the same time.
Once you obtained a debt consolidation loan, you may not be able to apply for a new loan unless you’re done paying off your consolidation company. Lenders would surely regard you as a high-risk borrower because of your current financial situation. Therefore, you may need to wait until you’re debt consolidation loan is completely paid off before getting approved for a new loan.
Consequences of Debt Consolidation
Obviously, getting a debt consolidation loan is not a quick way to get rid of debts. Although you can pay off all your creditors with the loan in just one payment, you still have an obligation to your consolidation company. It is crucial to keep up with your monthly loan payments to your debt consolidation company if you really want to be free from your debts.
Unfortunately, some people who took out a debt consolidation loan found themselves stuck in new debts only a few months after paying off their creditors. Half-way through debt consolidation, they started using their credit cards again and began incurring new charges on their accounts. As a result, they now have a harder time paying off debts to their debt consolidation company while trying to pay off their credit card companies at the same time.
For this reason, it is very important to avoid new debts while you’re on debt consolidation. Remember that as long as you’re paying off your debt consolidation loan, you’re still not completely free from your debts. If you’re not careful, you can be in a far worse situation than you were before you applied for debt consolidation.
Furthermore, the need to consolidate multiple debts is a clear sign that you need to take a closer look at your spending habits and lifestyle. What could have led you to such uncontrolled debts? Perhaps some changes must be made on the way you handle your finances. Perhaps you may need to exercise more control on your spending. If you find it really difficult to make these changes by yourself, don’t be afraid to seek help. Make sure that you address the root of the problem so you can stay away from bad debt permanently.