Debt consolidation is a very viable alternative to bankruptcy, and is certainly better than defaulting on your various credit cards and loan payments by doing nothing at all when you are having a financial crisis. The reasons for needing a consolidation loan are far too numerous to mention here, but suffice it to say that there are very valid reasons for needing a debt consolidation loan. Getting a debt consolidation loan is nothing to be ashamed of – maybe you had some outrageous medical bills, perhaps you were laid off from your job and have not found another job yet, etc. These are all valid reasons and things that were out of your control.



When personal debt gets to the point of being overwhelming and there seems to be way too much month left at the end of the money, many people automatically consider bankruptcy. But many people are also not aware of the newest bankruptcy laws, which vary considerably from state to state, which makes it downright painful to file for bankruptcy. Granted, sometimes bankruptcy is the best alternative based on the individual's situation, but more often than not, a debt consolidation loan can provide the necessary financial breathing room you need before you get back on your feet and can begin living life normally again.

The basic facts are that a debt consolidation loan is used to pay off your other accounts and loans, probably except for your mortgage where mortgages are typically not included in a debt consolidation loan. The nice thing about it is that instead of paying 10 or 20 different creditors the bare minimum payment amount, plus the outrageous interest rate that each of them charge, you are making just one payment to the debt consolidation service, and then they pay your creditors.

You are actually saving money in multiple different ways. Instead of paying interest to each creditor, you are only paying one interest rate which is to the debt consolidation firm where you got the loan. True, there is still interest being charged on each of your accounts that they are paying off, but almost all debt consolidation firms will arrange something with your creditors to drastically lower the interest rate, which is probably something that you could not arrange yourself.

The total amount you are paying to the debt consolidation firm to repay their loan is much lower than the sum total of all the payments you were making before when you were paying your creditors yourself. For example, if you were paying a monthly total of $3000 to all your creditors every month, your single payment to the debt consolidation company would be much less, say $2200 each month, which gives you $800 per month of financial breathing room.

The additional benefit is that your credit rating does not take a major dumpster dive as it would if you had filed for bankruptcy. From the creditor's standpoint, they are receiving regular monthly payments, on time, and your credit may actually improve, since timely payments to your creditors is a huge ranking factor for your credit score.

The bottom line is that you do not want to be in the position of filing bankruptcy or getting a debt consolidation loan, but if you are in a position where you need to do one or the other, the debt consolidation option will win every time.