Debt Consolidation does not reduce debt. What Debt Consolidation does is that it bundles together “old debt” into a fresh debt consolidation loan. In other words it replaces old debt with a new debt.
If you obtain a debt consolidation loan and pay out all of your “old debt” and you pay the debt consolidation loan repayments on time “as they fall due” then you may avoid bankruptcy. However, you need to make sure that you can afford the debt consolidation loan repayments.
Before applying for a debt consolidation loan, please contact a financial counselor or money coach to obtain independent advice on whether a debt consolidation loan is suitable for you.
If your credit record has default listing on it and you have successfully applied for a debt consolidation loan and you pay out the debts to which the listing related to, then you should approach those creditors and ask that they remove the default listings from your credit file.
If the default listings on your credit record were placed on your file by other creditors and those debts remain outstanding then your credit record will not improve. You would need to pay out those debts and ask the reporting creditor to remove the defaults from your file.
Some lenders who provide debt consolidation loans may require assets to be provided as security. This usually means that the assets would be used as security for the debt consolidation loan.
Tagged → Debt Consolidation Myths