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What's better - a debt consolidation loan, or credit counseling?

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Debt Consolidation and Credit Counseling


If you have a lot of debt, there are two very common solutions. Obviously a debt consolidation loan would be one solution. You go to the bank and borrow one large amount to pay off all of your smaller debts. A debt consolidation loan makes sense if you can borrow at a lower interest rate than what you are currently paying on the credit cards you want to consolidate.


But what happens if you don't qualify for a credit card debt consolidation loan?

There are many reasons why you may not be able to get a debt consolidation loan, including insufficient income or no collateral to pledge as security for your loan.

In fact, you may be denied a debt consolidation loan simply because you have less than one year at your current job, or because you have only lived at your current address for a short period of time.

If my credit is not good enough to get a debt consolidation loan, can I try credit counseling?

Yes, even if you have bad credit, you may be a candidate for credit counseling.

Consumer credit counseling typically involves a credit counselor contacting your creditors to work out a repayment plan on your behalf. These plans, called a debt management program or a debt management planare a great way to make a deal with your creditors.

To get a debt consolidation loan the bank must approve your credit. In credit counseling, each individual creditor approves your debt management plan.

The best part is that they don't worry about your credit score, or your work history, or many of the other factors that go into the typical credit decision. In credit counseling, the creditors will almost always accept your proposal, because they know that if they don't, it is possible that you will not be able to pay them, and you will be forced to declare bankruptcy.

Credit counseling is not the solution for everyone. If your creditors accept your credit counseling proposal, there will be a note on your credit report indicating that you made a deal with your creditors. That note may make it more difficult for you to borrow in the future.

That's why, if you qualify for a debt consolidation loan, that is normally the best option, because you preserve your good credit.

To determine which option is best for you, research your options. You can learn more about credit counseling at, a web site devoted to providing information about credit counseling, or by using our search tool:

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