Debt Consolidation: A Tactic You Can Use, Maybe

Written by Dana Neal

Debt Consolidation can help if you do it yourself.

Just because most debt consolidation companies are crooked doesn’t mean that you can’t or shouldn’t consolidate your debt.

Many people take out second mortgages or home equity loans as a way to consolidate their debt. Should you consider this route? Perhaps; it can be helpful in many respects, but it’s a tool like any other—one that can be advantageous or detrimental, depending on your situation. Certainly the interest rate will likely be lower than what you’re paying on your existing debt, and the interest is tax deductible. In this respect, debt consolidation can be beneficial. But you must look at other things, such as closing costs and other fees.

If you can get such a loan without paying off existing creditors, then you can hold the money in your bank account and then use it as leverage to get the derogatory credit history removed from the accounts you plan to consolidate. This can be an effective tactic if you understand Debt Fusion, a self-help debt relief and credit repair solution rolled into one.

By doing it yourself, you can negotiate the best terms for each individual account, by getting your debt reduced and getting the bad credit removed—Debt Fusion. Once this is accomplished, that’s the time to consolidate the remaining debt if you think it will benefit you. The main attraction at that point will be for a better interest rate, but bear in mind if you close the accounts that you consolidate, it could lower your FICO score. This will depend on the overall distribution of your score and how much a benefit will offset a negative. Reducing the balances on revolving accounts can be very positive, especially if the accounts are kept open, while the negative effect of new credit on a score will diminish quickly over time.

But don’t race out and get a home equity (or other any other) loan until after you have a plan, and you’ve found a way to maximize its benefits within your credit restoration/debt reduction framework. Then do the math and determine your best course. Always remember, the credit game is a puzzle, and you, with your cunning, have to piece together your future credit report and build the good credit and debt free life you envision.

If you opt for debt consolidation, always use a reputable lender, i.e., a bank or credit union. Never use alternative sources unless all other avenues have failed and you have no other choice. Most of the reasons were mentioned previously, but I’ll add another: bad financial decisions look bad to reputable lenders, making them question your judgment. Furthermore, your credit rating can be adversely affected by having subpar lenders on your credit report.