The use of credit cards to acquire various debts often has led to bad credit situations and consumers seeking out bad credit debt consolidation plans. Debt consolidation loans for bad credit borrowers are an option which many have used as a way to simply gain some form of control and stability over numerous debts which may have caused their credit score to drop due to missed payments or delinquency.
While there are reports which show consumer credit use has increased, there are indications that credit card debt has decreased for consumers too. However, there are still troubles that stem from cutbacks in employment, underemployment situations, or from the high level of unemployment which still remains. Obviously, bad credit has led to many consumers having trouble in other areas of their financial life, and for these individuals, debt consolidation seems to be the only option.
Make no mistake, there are some consumers who have simply defaulted on their credit and taken a hit to their credit score due to the fact that they feel making their payments at the present time will simply be impossible. Yet, in cases where multiple debts have cause expenses to get out of control and consumers have begun missing payments here and there, which decreased their credit score, these bad credit debt consolidation plans may be helpful in that a consolidation loan will only require one monthly payment for individuals in a bad credit situation.
On the other hand, there have been financial advisers who feel any type of debt consolidation is simply a bad idea due to the fact that compiling various debts into one loan, even when a bad credit score is present, will not be beneficial for a cardholder due to the fact that overall costs will increase. Traditional debt consolidation loans and bad credit consolidation loans will simply compile all debts into one obligation, which many consumers feel to be ideal since they will only be combating one interest rate as well.
Yet, even if a consumer gets an affordable interest rate on their debt consolidation loan, the repayment time period will be extended since a higher principle amount is grouped into this debt consolidation loan, and over time interest will be able to build, thus costing more. While this is understood by many consumers and may not factor into their decision to acquire a debt consolidation loan, advisers want to caution against debt consolidation or bad credit debt consolidation loans for this reason.
Proponents of paying off debts separately can help improve a consumer’s credit score, and may be able to lower overall costs as well since smaller principal amounts could be easier to meet. Yet, consumers who are in a bad credit situation and seeking a bad credit debt consolidation loan have also benefited from nonprofit credit counseling agencies, in cases where a debt repayment plan may have been more beneficial than consolidating debt.