Debt consolidation is the process of merging one's debts into one thus making the debt more manageable and cheaper to pay off.
The person with poor credit records ends up making a single monthly payment with lower interest for all the consolidated debts.
There are many positive consequences of debt consolidation.
First, it provides a plan where one can pay off their debts using low monthly payments and on low interest rates.
Thus the person is able to recover faster from the poor credit situation than if he was paying off the debts one at a time.
Credit consolidation improves credit score.
This is made possible by the fact that bringing the debts together leads to some credit lines being closed.
Thus one is longer stated as owing any debts to the creditors whose lines have been closed.
Furthermore, it is better to be in one large debt than in many small ones.
Credit consolidation also creates an impression that at least one is making an effort to get out of the debt situation.
Creditors take this as a positive sign and it may subsequently lead to a better credit score.
One major negative consequence of seeking the services of credit consolidation firms is that they negotiate with creditors so that their client can only pay a small proportion of their debt.
This, when reflected on their credit report, is shown as 'settled debt' which means that the debtor was unable to clear all his debts.
This can lead to loss of further credit in the future as creditors will not be wiling to accord debts to a person whose repayment ability is questionable.
Another negative consequence of credit consolidation services is that one is not in a position to use their credit card until the debt is fully settled.
If at all a credit card is used, one goes into further debts putting in mind that the consolidated loan has to be repaid plus the charge incurred on the credit card.