If your credit score is already less and you are in a deep financial mess, then debt consolidation companies will make it no worse. Though there are chances, but certainly not a drastic fall.
In case your credit score is a matter of concern for you, then it’s wise to check how the payment pattern is designed and how does these consolidation firms report to the credit bureaus. Debt consolidation is certainly a good option, but only if you go the right way.
Debt consolidation is the process of combining all your debts into one single loan so that there is ease of management. Two most common form of the same is debt consolidation loans and home equity.
Debt management or consumer credit counselling companies offer debt management programs to help you manage your debts. Debt management companies are like third party arbitrators who get in touch with each of your creditors and draft a suitable plan so that gradually you pay your dues. In case the creditors agree for a lesser interest rate and waive late payment charges, then the debtor pays a lump sum to the debt management company who in turn, will pay dues on your behalf.
In the future, all these debt settlements will certainly have an adverse effect on your profile. However, debt consolidation alone cannot be blamed for a reduced score until you fail to make the payment.
There are chances that your debt management company is delaying your payment even though you have made the same. The reasons may be that they still haven’t negotiated the plan or some internal issues. This will be considered as a late payment in your credit report though you have made the payment on time. Late payment charges will apply, as well. Hence, do keep a track of all the actions of your debt management company with reference to your account.
It is to be noted that debt consolidation is not for everyone. If you fail to make payments on time, then your creditor may negate the option of consolidation. Apart from that, debt management companies also charge you for their services. Sometimes, it so happens that at the end you may feel that if you would have managed the same then there were possibilities of saving a few here and there.
The above-mentioned points need to be considered before opting for debt consolidation.