You may be wondering ... what is debt consolidation... how does it work when it comes to credit repair. If you are thinking that debt consolidation will help you, you may be right. However, if you are thinking it will help you repair your credit, well, it may or may not, depending how you go about it.
Let’s first define it. Debt consolidation is taking your debts (usually unsecured) and combining them into one large debt which can have its advantages...read on....
Consolidating your credit card debt will help take the edge off if you have accumulated too much debt and you don’t know what to do next.
However, when you consolidate, you still have the same amount of debt. If you have done it properly you should have a lower interest rate.... especially if you have high interest credit cards.
Keep in mind that the debt consolidation companies will do the same thing you can do.
Your What is Debt Consolidation decision: Do you want to do it yourself and take the time and energy to handle it or would you rather have a qualified credit card debt consolidation company do it for you.
It’s like anything in life. You can save money by doing it yourself. Or you can save frustration and headaches by having someone, who is experienceddo it for you.
I always compare things like this to changing the oil in my car. I know how to do it, its not difficult but is is messy and time consuming. I would rather pay the service station $25 to handle it for me....easy.... no mess...done.
They are the experts who can do so more efficiently with less effort on my side.
However, you will still have to make payments. As I say to my kids, “there is not one right way, there are choices.”
If you are applying for a debt consolidation loan to improve your credit, it will not influence your score much. Because using it to pay off your other accounts shouldn’t raise or lower your credit score significantly. In the short term, your score may drop a little just because you have a new debt.
Credit and lending agencies look at your credit history as a whole and will note that your other accounts have been paid off.
In the long term, however, if you make the payments on the new loan consistently for a year or two, it should ultimately improve your credit score. So this can be considered a longer term goal for credit repair. But it is notcredit repair.
It pays to be careful how you deal with the accounts you pay off, however. If you have a poor credit record, you may decide to close your credit card accounts in order to remove the temptation to spend. But closing your accounts doesn’t remove the credit history for those accounts. Keep the accounts open and cut up the cards.
In addition, closing several accounts can reduce your total available credit and thus raise the percentage of your available credit that you’re using.
This could make you look “maxed out”, and a loan company could consider this as a warning sign. This also is a factor that reduces your credit score.
If you are asking the question What Is Debt Consolidation?, be sure to get the help you need to get your situation under control.
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