How Debt Consolidation Affects My Credit Score

Debt Consolidation

Debt consolidation can hurt or help your credit score, depending on how diligent you are and the method you opt for your repayment plan. The approach allows you to combine numerous credit card balances into a solo monthly payment with a lower interest rate than your current payment. Debt consolidation impacts your overall credit score depending on how you service your debt.

Debt Consolidation Practices That Raise the Credit Score

Consolidating your debt can momentarily hurt your credit score, but you can also use it to raise your credit score over time. Below is a list of best practices from Symple Lending LLC to improve your credit score while consolidating your debt.

  • On-time payments: Making your payments on time helps improve your credit score positively over time. The payment history is an integral factor in determining whether you are eligible for another loan in the long run.
  • Lower credit utilization: Transferring your credit card debt to a transfer card with a higher credit limit results in a minimal utilization rate that improves the overall credit score. The same approach is practical when using a loan to clear your credit card debt.

Debt consolidation may improve your financial situation, which makes it effortless to stay atop other debt payments.

Ways of Consolidating Your Debt

Depending on your current situation, there are multiple ways of consolidating your debt. Below is a summary of each according to experts at Symple Lending LLC:

Debt Management Plan

The approach proves effective if you have minimal debt consolidation options and when your credit score is in bad shape. A nonprofit credit counseling agency will negotiate a lower monthly payment and interest rate with your credit card companies. The approach lets you pay modest upfront fees and close all your credit card accounts.

Debt Consolidation

Home Equity Loan

Homeowners can tap some equity to service their credit card debts. Home equity loans have a high closing cost but offer low-interest rates. These loans utilize home equity as collateral, and homeowners can lose their properties if they default on payments.

Debt Consolidation Best Practices

Debt consolidation may be daunting, but it’s less intimidating if you utilize the right strategy. Below is a list of debt consolidation best practices:

Avoid More Debt

You should only add additional debt if you intend to close your credit card accounts. Otherwise, it feels like you’re taking one step back and two steps forward. Additionally, it’s an excellent idea to take the initiative to address those issues that led to the initial debt.

Seek Offers

Regardless of the type of consolidation you want to pursue, comparing and researching offers from multiple sources is essential. The approach enables you to narrow the options and stick to those that allow you to achieve your goals. Individuals with excellent credit can consider numerous debt consolidation methods, including personal loans, balance transfer credit cards, and home equity products.

Stick to a Solid Repayment Plan

It would help if you strived to stick to your plan once you complete the debt consolidation process. For instance, if you have a balance transfer credit card, you should prioritize clearing it before the APR introductory 0% period ends. The approach enables you to avoid interest charges on the remaining balance. Individuals who fail to keep up with the debt management plan may have their plans terminated, forcing them to deal with the debt independently.

There are multiple debt consolidation products and programs available. Consolidating your debt enables you to improve your credit score in the long run due to faster debt repayment.