While debt consolidation can make your current bills more manageable, it's a financial decision that comes with high risk. If you fail to make payments on your debt consolidation loan, for example, your credit score will suffer greatly, leaving you in a financial situation that's likely more serious than it was before consolidation.
Some debt consolidation loans are secured, meaning you have to put up collateral in order to get the loan. If you miss payments with a secured loan--such as a home equity loan--you could risk losing your home.
In addition to a lower credit score, missing debt consolidation payments will have the following consequences:
Two or more missed payments can have you running the risk of defaulting on your debt consolidation loan. In turn, your company will report this action to the three major credit bureaus, and the negative information will be added to your credit report.
Implementing a debt repayment plan successfully is a challenging task. When debt consolidation fails to get you out of debt, you have even more work to do, but solutions do exist.
You can talk to a credit counselor about enrolling in a debt management plan. If you choose this option, you would pay the credit counseling company a monthly fee, which would then be distributed to all of your creditors. Your creditors may then agree to lower or eliminate interest rates and other fees.
In some cases, it may be more beneficial for you to file for bankruptcy than it would be for you to restructure your current debt. You can either file for Chapter 7 or Chapter 13 bankruptcy. If you want to keep your assets--such as a house or car--filing for Chapter 13 is the safest route.
This option allows you to set up a payment plan under court supervision, although if your current financial situation is due to a job loss, you won't qualify. To file for Chapter 13, you need to prove a steady income.
Chapter 7 is more appropriate for those with substantial unsecured debt. This option will mandate that you sell your assets as a means of covering the debt. If this doesn't sound like an appealing option, you can try finding the right debt consolidation company.