What is debt Consolidation? Debt consolidation also known as credit counselling is basically taking out a single loan to cover the costs of multiple loans. This allows those who are in debt to reduce their multiple payments into one lump payment in the hopes of reducing stress and making the bill more bearable. This is often done through a series of lower interest rate yielding secure and fixed interest, as well as the simple convenience of only footing a single bill rather than several. By way of debt consolidation, those in debt are able to feel less stressed and more in control of their lives, allowing themselves to have only one debt repayment bill is allowing them to have their lives back from the stress of debt.
How Does Debt Consolidation Affect Your Credit scores?
A debt consolidation loan does affect your credit rating, both in a positive and a negative way. There is really just one thing in consolidation that can make your credit go down. This is the fact that many plans that debt consolidation companies make for their clients involves “settling” the debts. Settling a debt means that they bargain with your creditor to find a way so that you only have to pay a fraction of what you would have had to pay otherwise. Unfortunately, if they succeed and you don’t have to pay as much as otherwise, this shows up on your credit report as a settled debt, which any future creditor could take to mean that you were unable to pay. However, this will vanish from your credit report in a short time, and is not permanent.
Otherwise, debt consolidation can have only positive effects on your credit report. First and foremost, your debt will be reduced and possibly eliminated through it. Also, you will eliminate any other lines of credit, if you choose to do so, which alone can have a positive effect on your credit score. You even will get a huge amount of assistance for bettering your credit score in ways beyond debt because most debt consolidation companies give out free assistance and counseling services.
Beyond what is mentioned above, your credit score will not really change. The single biggest factor will remain completely stable: your debt to income ratio, as you are just consolidating in the beginning. Furthermore, even if the company chooses to settle your debts, your credit score won’t take too much of a beating, as everything else will help it out. It should at least be a wash for your credit score, if it doesn’t improve.
See also : Mortgages for Single Mother With Bad Credit
By the way, by researching and comparing the best debt consolidation companies in the market, you will be able to determine the one that meet your specific financial situation, plus the cheaper interest rates offered. However, it is advisable to use an accredited and trusted debt counselor before you make a decision, this will save you time through specialized advice from an experienced debt counselor and money to get better results over a shorter period of time.
Important Effect of debt consolidation on credit scores
• Get on the Debt Free Train
The importance of debt consolidation and its effects on not only your credit score but alleviating all of your credit card debt is what drives the industry today. As many individuals that are in need of some relief from their everyday debt there are matching debt consolidation firms to fit that bill. It would be silly of us to say that they are all 100% viable and outstanding community centered individuals and debt consolidation firms but we know that not to be true.
• Perfection is the Goal
Please make certain that when you are going through the selection process for a debt relief firm that you do so with a positive mindset that utilizes the old Ronald Reagan adage of trust then verify. You can trust all the way to the signing of the debt consolidation loan contract then you must verify every single aspect of that loan instrument. This way you will not only be sure and certain that the debt relief package is exactly what it was advertised as but also that you will be well on your way to improving your credit score and we will tell you why right here and right now.
• Alleviates the Outstanding Credit Card Accounts
Debt consolidation alleviates the outstanding credit card accounts that are on your desk right now and also has a residual and stone in the pond rippling effect on your credit score. You see what happens is once the credit card account is paid off that credit card company must report a positive statement to all three credit reporting bureaus stating just that fact. The account has been paid in full and is in good standing. Now does not sound much better than 17 slow or late pay reports on your credit file?
The whole point to debt consolidation is to reduce the overall interest rates, not the balances. When going through a nonprofit servicing agent the creditors are more willing to reduce these figures as opposed to a consumer trying to do it on their own.
Credit counseling is available in all 50 states. It’s highly advised to seek out a credit counseling program, rather than to pay just the minimum required payments. Several months ago, the FTC past new laws which require creditors to show how long the consumer will be in debt. What these creditors do to consumers, should be considered illegal – but unfortunately, is not. They say it takes an estimated two years for every thousand dollars a consumer owes in credit card debt.