Why Debt Consolidation is Risky Business for People in Need

Debt consolidation can be a risky business for the people in need. There are reasons why I am saying this. But before I get into dept let me first tell you what debt consolidation is.

What is debt consolidation?
Debt consolidation helps you to roll up all your debt under one lender. This is the process which helps you lower the amount that you pay substantially.

How debt consolidation helps you to lower your debt?
There are debt consolidation companies operating in the financial market. These companies have experts working for them. Once you approach these companies and tell them that you have problem in paying off your debt, they guide you and work with you so that you can manage your debt and pay it off in a much better manner.

Once you pay their fee and enroll with them they start their work. Their experts approach your creditors and negotiate with them to lower the interest rates that they charge you for the amount that you owe them.

Once the amount is negotiated the experts help you to consolidate your debt amount under one lender. This makes the repayment easier. This no doubt is one of the solutions which bring you out of your debt situation easily. But this solution is not for everyone. Debt consolidation is effective only for the individuals who have to pay large amount of debt and who have no other way out of the debt situation. this solution is effective only for the individuals who have tried all the means and have just two ways left with them to get rid of their debt; either file bankruptcy or to consolidate their debt under one lender.

Why is debt consolidation a risky business for the people in need?
This is because as you consolidate your debt and negotiate your amount you get all this on your credit score. Your creditors will entre the deal in your credit score as 'settled for a lesser amount'. This is one of the negative marks which reduce your chances of getting any other finances from other lenders in future.

Then what is the other way out?
Approach a debt management company. Such companies can be a non profit or for profit companies which operate in the financial market. A debt management company provides the debt solution to the individuals suffering from the debt problem. These companies have experts who analyze your debt condition as well as your financial situation and suggest you the best possible debt solution so that you can manage and pay off your debt in a much better manner. You give your bills to the company which pays your creditors on a pro rata basis. And this does not hurt your credit score.