We have all heard the offers made by those bill consolidation loans companies. Let us help you get out of debt. Many of us have went as far as to consider their service as a opportunity to maybe just do that: get out of debt. What exactly does it mean for you if you take the service of a consolidation company?
Debt consolidation companies will combine your monthly payments into one lump sum payment. They do this by negotiating with the agencies that you own money. Many times these consolidation companies can get your debt dropped down or possibly even your interest lowered. This allows them to combine your debts and you come out paying less than you were when you were paying all of them separate. Many of these consolidation companies take credit card payments, some take bank loans, car payments, medical bill consolidation, etc. Well all this sounds great right? You have one monthly payment instead of twenty and the amount is even lower. So what could possibly be wrong with consolidating?
When you consolidate your bills you show signs of not being very good with credit. Creditors see this as an inability to pay your bills even though you are still making payments on them. This will affect your credit score. How badly it will affect has to do on a number of factors such as the amount you consolidate, the number of payments you consolidate, etc.
Once you consolidate your bills you should also be aware that you are unable to use any credit that you still have for instance if you consolidate a credit card with $300 available on it you will not be allowed to use the card to spend the $300. Most consolidate companies will also close your account once they are paid off. You will not be allowed to retain any credit that you previously had consolidated. Once a bill is paid off and the account closed the consolidation company will either put that amount toward another of your bills or you payment will be dropped.
Despite how good consolidation companies make their service sound it is something that should only be considered if you can not make your bills. The look on the outside is bright and sunshiny but the outcome is much more dark and cloudy. Yes, you may be able to pay off your debt cheaper and sooner but you lose any credit that you have built up. Once you have all your bills paid off you will have to again establish any credit you may need and it may not be as easy as you think. You will be considered a credit risk meaning you may have to start back out exactly where you was when you first got any credit at all and work your way back up.
Once you do begin to get credit back it is very important to not let yourself make the same mistake twice. Only get one credit card and only use it for stuff you need. Pay it off if possible each month. Closely watch how you budget your money to avoid over stepping what you can pay each month. A good rule of thumb to go buy is this: if you are married one either yours or your spouses checks should be able to cover your biggest payment most of the time your home, the rest of the income should be able to cover your other bills plus food, gas, and insurance with money left over. This way you know that you can pay what you have. I know this generally does not happen but do not let yourself get into debt where that no matter what is coming in you are behind. If you do you will soon be seeking the service of another consolidation specialist for our debt solutions.