Debt consolidation and credit rating are invariably linked. When you are looking to consolidate your debts, there are bound to be impacts to your credit score. These impacts can be good or bad, depending on the type of debt consolidation you use. Here are some common methods of debt consolidation and how they impact your credit rating.
Many people looking for debt consolidation have high credit card balances. credit cards are considered to be revolving balances. This means that the amount of debt will raise and lower periodically. Having too much revolving credit can have a negative impact on your credit score because this is unpredictable debt. So, the best way to consolidate credit card debt is with a fixed rate loan. This will lower your revolving debt balance and help boost your score. Just don't use those cards again or close them all at once. Closing the cards will negatively impact your credit rating.
Now, don't think that credit cards are all that you can consolidate. Personal loans, car loans, student loans, and more can be put into one loan to help you save money and raise your credit score. Each time a loan is paid off, your credit score will go up. So, if you have loans that can be consolidated, go for it!
Probably the cheapest way to consolidate debt is to use the equity in your home. This will afford you the lowest rate with the longest terms. This will allow you to have a lower payment, which will make your monthly budget a little easier to manage. Now if you don't own your own home, don't lose heart. There are still plenty of personal loans out there to help you get a handle on your debt. Check your local banks as well as online to score the best deal on a debt consolidation loan.
Many people choose to go through a debt consolidationcompany. This is a whole different type of debt consolidationand will impact your credit differently. These companies deal with your creditors to help lower rates and work out a repayment plan that is more advantageous. Most people who go this route are already having trouble making payments, and as a result, their credit rating has suffered. Debt consolidation companies can help you raise your credit score, but it will take a while. In the short term, your credit rating may drop, but you will see it steadily rise if you stick with your debt consolidation plan.
There are many ways that consumers can deal with debtconsolidation and credit rating. The option that works best for one person does not necessarily fit another person's situation. It isbest to explore all options for debt consolidation. Credit rating is directly linked to the type of debt consolidation that you choose, so make sure that you make an informed decision.
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