Bad credit can feel like a death sentence. Many apartments won’t accept you, you get higher interest rates on any line of credit you apply for, and many companies will charge you more on your bills just because you have bad credit. When you’re stuck in this position, it’s logical to try and find ways to get out of it. Debt consolidation is the act of taking all of your debts and merging them into a single source to make it easier to pay off, but is debt consolidation for bad credit an effective approach to solving your problems?

Consolidation Makes For Easier Budgeting.

By cutting down the number of people you owe money to down to one, it’s a lot easier to make sure you’re paying your debts and easier to budget for your debt payments every month. This can also have a positive effect on your credit score because instead of having a number of open lines of credit, you have only one. This closes out any unsecured credit cards, as well as any other lines of credit, and performs a process known as credit utilization to decrease the credit limit you’re using.

The Effect On Your Credit.

At first, if you go through with debt consolidation you will notice your credit dip by a bit. This is because all debt consolidations require a hard inquiry on your credit, and those usually make your credit score drop by a few points temporarily. It usually drops by 5 or less points, and will typically bounce back up within a few months.

The direct results depend on you. If you’re able to change the credit habits that got you into debt, then you should be able to see your credit score rise over time. As long as you’re making your monthly payments on time every month, month after month until the debt disappears. Many people do find success with this method as long as they stay on top of it. On the other hand, you do have to stay on top of it. Missed or late payments can result in your credit score being lowered, and there are a few other pitfalls that you can fall into with a consolidation.

Types Of Debt Consolidation.

There are two main types of debt consolidation, you can take out a personal loan or you can get a transfer card. Both of these come with their own pros and cons. For instance, personal loans require a lower credit score than transfer cards but you can end up spending the newly opened up credit, as well as end up paying much higher interest rates.

Transfer cards are a viable option if your credit is high enough for it. These typically have lower interest periods, as well as flexible payments. This option does have a higher credit score requirement than taking out a personal loan, and if you don’t pay off the debt before the end of your lower interest period you could end up paying higher interest rates.

Building Your Credit Back Up Is Important.

It can seem daunting, to put it lightly, but there are options available to those that need to get their credit back up. Debt consolidation could be a viable option for many people with poor credit, and as long as you’re responsible and follow through on your plans you should be able to see your credit score rise over time. It does take some hard work and dedication to make sure you don’t fall back into the same traps that got you into this situation in the first place, but people do it every day and you, too, could be on the right path to having good credit.