You can consolidate you debt using your credit, personal loan or home equity, it all depends on which method fits your finances well. Consolidating your debt may sound risky, but it does not have to be. A dept consolidation can be useful when you are facing financial troubles such as multiple loans and loan overdue. You can take control of your finances simply by consolidating all your loans. Basically, it involves pilling all your loans into one big account and dealing with it as a whole. You can also make the payments using a personal loan and clear the personal loan later. It helps you reduce all your interest rates and pay the loans faster.
Debt consolidation is directly related to your credit score. If you have a poor credit score, you are less likely to qualify for a debt consolidation loan. You will either get your approval declines, or receive a lower offer than you applied for. With a good credit score, you can easily get approved for a debt consolidation loan by all types of lenders. The upside of having a good score is that you will get better loan rates with lower interest rates.
Here are a few ways your debt consolidation loan may affect your credit score.
Monthly payments may boos t your credit score
Monthly payment makes it easier to manage your payments. Debt consolidation essentially involves clearing all your debts and focusing on paying one lender. This will direct your focus into making one monthly payment, which is easier. Keeping track of one loan payment is easy. When you clear the payments on time, it reflects as a positive impact on your credit score.
Regain your credit scores
Multiple debts may lead you to miss some payments and essentially hurt your credits. Sometimes, the lack of funds may be the main reason you miss some of these payments. When you consolidate your loans, you will have enough time to clear the loan. This gives you a fresh start at getting new scores on your credits
Repay other debts
Debt consolidation will help you clear loans and credits that you may have. When you have one monthly loan payment to make, you will have fewer commitments on your loan. you can save up some of your disposable income and clear out the poor credit history on your credit report. this will give an immediate boost to your points
You can add injury to your credit report
If you fail to make the consolidation payments on time, it will have a negative impact on your credit score. a late or failed payment reflects as a negative on your credit history, which lowers your credit points. The more late payments you make the lower your credit points become
It is easy to get into more debt
Using a loan to consolidate your credit card debts is a risky move. It may clear all your loans but this is only a temporary move. When you fail to make the loan payments, your credit score will be affected negatively
The only proven way to maintain a good credit score is to take loan only if you need them and if your income can afford that kind of commitment. If you find yourself in a debt issues, a consolidation plan may come in handy.