Hundreds and thousands of people from all around the world are being sucked into debt. Many people are working quite a lot and in spite of that earning quite less, and this can make it quite difficult for them to go ahead with any necessary expenses and save money rather than having to scrape by with the meager incomes they make.
In case, you are wondering whether to consolidate all your debts then you shall have a great many questions. One of the most common questions that many consumers ask is whether by consolidating their debts, they will risk damaging their overall credit score. This article will shed some light on this pertinent issue for your benefit.
Basically, the answer to this question is really dependent on you. Debt consolidation loans will not normally be hurting your credit scores in general cases. But you must be making your regular monthly payments.
3 Steps for Debt Consolidation Loans
1. Select a Good & Reputable Company
First of all, you will be required to find a good company for debt consolidation. A lot of companies will only be offering you debt consolidation loans in case the accounts get considered as delinquent.
Obviously, in case you are choosing this mode of operation and your accounts are damaged then your overall credit score will also get damaged. Also, the debt consolidation company will be responsible for making the payments for you.
If your lender is not making any of the payments or is making late payments, you will become responsible for the late payment or the nonpayment. This will also be detrimental to your credit score.
A lot of debt consolidation companies can pay only a single account off at a time, and as a result, the other accounts would continue being delinquents. This gets also reflected on your credit score and lowers it.
2. Try to Get a Low Rate of Interest
A loan for debt consolidation can only be successful if it is able to reduce the debt you have if you have a low rate of interest.
Also, it will be vital for you to locate a good company for debt consolidation which has had success in making people overcome the debts they have with their dedicated debt consolidation offers. A not for profit credit counseling company can also be a good option for you as they will make any money from you.
Monthly Payments to Lenders
In the event that you are already finding it difficult to make your minimum monthly payment to your lenders, then you will be having already a very low credit score. If this is not the case, then you shall have good credit scores and a better chance to get low-interest rates on your loan for debt consolidation.
People who do not have good credit will, of course, find it quite difficult to get a low rate of interest. However, it can be done with a bit of patience and you can still get reasonable rates which will still improve your finances.
You will find a lot of options to choose from in case you are seeking to find lowest rates of interests for your debt consolidation loans. You must start with your bank and credit union and then see what they have on offer for your debt consolidation.
Monthly Payment Plans
It is essential to know your monthly payment plans and terms so as to be able to compare the plans and the interest rates. There a lot of online lenders too, although some are legitimate while others are scams and you should be careful of any deals that you make, hence do adequate research before you sign any agreements.
When you find a legitimate online lender, you will be getting a relatively lower interest on your debt consolidation loan, and you will be able to use this as a way of improving your credit score.
3. Exercise Responsibility with your Loan for Debt Consolidation
A debt consolidation loan will make it a lot easier for you to handle your debt. When you are getting a loan with a low rate of interest than the credit card accounts which you currently have, then you shall be on the correct track.
Instead of having several small accounts with high rates of interest, you will be able to reduce all your payments into a single amount. This will make it quite easy for you to make your payments at the right time and that will again improve your credit score.
At this juncture, you ought not to be trying to open any newer credit card account. It should be of top priority to you that you must remove your debts and then try to live within the means you have so that you will not only be needing any more to use credit cards unless in absolute emergencies.
Apply for New Credit Card Account
After you pay your debt consolidation loan, you can apply for a new credit card account. This will help you improve your credit scores drastically, while also help you to manage your finances more efficiently.
Right after you start to debt consolidate, you can see your credit score fall down significantly. However, you must not be alarmed with this. The amount by which your credit score gets lowered will be dependent in part on the number of credit card and debt accounts that you have open.
The more accounts that you have, the more will be the number you have in delinquency and default. This will make you a high priority credit risk. After you start paying for these accounts, you will see the credit score rise and especially when an account is settled completely.
Debt consolidation loan is a boon for many people who are suffering from grave financial debts. It can help them to pay off their debts and lead a debt free life.
Wrapping things up
Debt consolidation loans do not necessarily lower your credit score provided that you make your payments on time every month.
- 14 Things That Can End up on Your Credit Report
- How To Manage Credit Cards and Improve Your Credit Score Effectively
Author Bio: Marina Thomas is a marketing and communication expert. She also serves as content developer with many years of experience and helps clients in long term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.