Can Debt Consolidation Help Your Credit Score? – IT news Africa
So you have tons of debt and you finally decided to get help. You have opted for debt consolidation but are concerned about how financial strategy could affect your credit score.
But can debt consolidation actually help your credit score? You can be pleasantly surprised.
Why Consolidate Debt?
Let’s start there. In short, you can save real money by consolidating your accounts. For example, if you have cards with an overall rate of say 24%, you can try consolidate your balances into a new credit card or loan with a lower interest rate.
The financial solution also makes paying bills easier as you only have to worry about one monthly payment – a fixed one. This is in contrast to multiple payments of different amounts due at different times.
While there are several ways to consolidate debt, they all have in common that they combine all of your debts into a single new loan. Let’s look at the different types of consolidation. Which one to choose depends on your situation and your credit. For more information, see Freedom Debt Relief Reviews – www.freedomfinancialnetwork.com.
- Personal Loans. This only makes sense if you can get one with a better interest rate than what you are paying now. If you qualify, you can zap that high-yielding debt and potentially pay off your debt faster.
- Credit cards with credit transfer. Credit card issuers occasionally offer a card with zero% interest for a promotional period. If you are eligible for one of these cards, you can move your higher-interest debt onto it. Just make sure you can pay off the transferred balances before the interest rate skyrockets again.
- Loans for retirement accounts. You never really want to withdraw from your retirement, but it’s an option when you need it. You can use the loan to consolidate and clear the debt. The catch is that you have to pay back the loan on time or pay taxes and fines.
- Home loan or line of credit. If you own a home, you can take out a loan against the equity and use it to pay off debts. These loans usually offer attractive interest rates. Why? Because the lender knows they can take the house if you expire.
How will consolidation affect my balance?
Consolidating your debt can improve or hurt your credit score. Here are a few ways your score can go down:
- Through loan applications. Yes, your scores will be affected by a few points when you apply for a personal loan or prepaid transfer card.
- By opening a new account. This will temporarily lower your score. Lenders view new credit as a risk, so when you take out new credit, your scores will go down for a while.
- Your average credit age is falling. Your credit score will increase as your account ages, and your credit report will reflect on-time payments. However, adding a new account will lower your average account age and may temporarily affect your score.
On the other hand, there are some ways that debt consolidation can be done let your score go up:
- Your credit utilization rate drops. A lower ratio is a good thing as it shows that you are not using all of your available balance. When you open your debt consolidation account, your utilization rate may go down as the loan increases your available credit.
- Your payment behavior improves. You have to be careful and patient, but if you pay off your new loan on time, your credit score will go up over time. Just be sure to pay on time as your payment history is of the utmost importance in the credit check.
So Can Debt Consolidation Help Your Credit Score? As you can see, the answer is answer Yes!
The most important thing for you is to tackle a financial solution. Once you do, you will be back on track in no time.
From Staff Writer.