The bankruptcy menace is always latent for those who cannot control their debt. If your income to debt ratio is too low, any unexpected circumstance that worsens your financial situation can easily lead to default and eventually to bankruptcy. In order to avoid such a threat, you can always resort to debt consolidation. Are your bills pilling up? Debt keeps accumulating? You can’t pay even the minimum payments on your credit cards? No one will lend you money due to your bad credit? You’ve entered what some consultants call the vicious circle of debt. Debt accumulates and due to interests and not enough income people can’t reimburse the money they owe and debt keeps growing more and more. This is not an uncommon situation but it is really dangerous to your financial health and with luck, even if you can avoid bankruptcy you have at least two years ahead of you where you’ll have to fight to rebuild your credit score and improve your credit history. During this period, your ability to get finance will be considerably reduced. Debt Consolidation: Escaping The Vicious Circle One way of interrupting this process of debt accumulation is to consolidate your debt. This can be achieved by negotiating directly with your creditors or by hiring the services of a debt consolidation agency. Depending of the expertise of the agent assigned to your case, you can get up to a 65% debt reduction under the right circumstances. However, unless the debt consolidation agency has special agreements with creditors, your credit score will be affected negatively if you choose to consolidate. Nevertheless, if your debt has become unbearable, a reduction on your credit score due to undertaking a debt consolidation program is a price you’ll have to pay. After negotiating with your creditors you’ll end up with lower monthly payments, a considerable debt reduction and the peace of mind that comes with knowing that you are no longer at risk of loosing all your properties. Continued timely payments on your remaining debt will help you recover your credit score and achieve a good credit tag. Sometimes, after debt negotiation or as an alternative to it, you can obtain a debt consolidation loan. Debt consolidation loans provide a considerable amount of money that has to be used to cancel outstanding debt. You get debt relief by obtaining lower monthly payments and a lower interest rate than the average of your previous debt and the lender in return makes sure he is your only creditor and will have priority when it comes to recovering his money. If you choose not to resort to a debt consolidation loan you can also get a single monthly payment since most debt consolidation agencies, as part of the negotiation process, agree with the creditors that they will handle the payments on your behalf. Thus, you’ll pay each month a single amount to the debt consolidation agency which in turn will deliver the money to the creditors. If you choose to take advantage of these services, make sure you get the corresponding receipts that prove that payments where actually made in order to avoid missed payments from appearing in your credit report.
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