The Consequences of a Debt Consolidation Loan

What are the consequences of a debt consolidation loan? This is a question many of our readers/borrowers ask. The short answer is very little negative and all positive. Why? Because it shows you are taking positive action to clean up your bad debt, and perhaps learn to live within your means. Bad debt defined as being on your credit cards, department cards, or any other high APR credit line.

The credit reporting agencies such as Equifax, Experian, and TransUnion are always calculating your credit score (or FICO), and that is something you want to watch out for, but there is still the personal relationship you have with your local bank. The result of these reputations and relationships with the credit bureaus and your local bank add up to a growing consensus on your personal credit rating. When you take the smart step of consolidating all of your bad debt these authorities see it and this can only help you.

More importantly, YOU can see the positive results that come with being frugal (smart) regarding your financial state. When you consolidate all of your debts into one low payment, and thereby greatly reducing your stress. Below is a list of the positive results of a debt consolidation loan.

Positive Consequences of a Debt Consolidation Loan

all your different debts are rolled into one debt
you may not have to pay the full dollar amount (pennies on the dollar)
your total monthly payments toward debt drops significantly
you have a lot less stress in your life, and I can’t stress the importance of this (couldn’t resist )
usually you will have enough money left over at the end of the month to begin saving again
the banking and lending industry see the action you are taking for a better personal balance sheet
you pay a much lower interest rate (APR) on all of your combined debt than if you were stuck having to pay down high APR debts such as credit card which carry an APR of 18% to 28% depending on your credit card agreements
most importantly you have a second chance to get your act together and start working out your fiscal brain instead the brain that “just wants to have fun”

Negative Consequences of a Debt Consolidation Loan

once you have consolidated all your bad debt you may choose to start spending again and put yourself right back in the same dire financial position
you might start cranking up your credit card debt again because the zero balance on your credit cards might be burning a hole in your pocket or purse
by getting yourself bailed out too early you may not suffer enough financial pain to learn from your mistakes and over spending. You may need to suffer a lot more before you actually “get it”
you may not get bailed out and consolidate your bad debt soon enough and cause extreme damage to your credit rating and FICO score – making your chances of borrowing any money slim to none
you may not read the consolidation loan agreement closely and end up with a high APR that balloons somewhere along the term
you might not fully disclose all of your bad debt to the consolidation loan provider resulting in multiple payments every month

This last point is the most important tip I can give you if you are in the midst of fighting of bill collectors and nasty collection agencies – if you realize that you are ready for a debt consolidation loan – MAKE SURE YOU FULLY DISCLOSE ALL YOUR BAD DEBTS to the loan officer, or whoever your lender is going to be.

You must clean up ALL your bad debt (not just the debts you are not embarrassed about) and as a result only have one payment per month at a much lower interest rate.

The consequences of not taking action are much worse than taking action. Move on and learn on. Be completely honest with yourself and adapt to your new financial reality.