Debt Consolidation and Credit Ratings
Debt consolidation can be a valuable option when you are
experiencing high interest rates on consumer debt. There are
several different types of debt consolidation, and your access
to those options will depend on your credit rating.
If you have poor credit, then unsecured personal loans and
home equity loans will not be possible under normal terms. You
can however get help through credit counseling, especially if
you have a poor credit rating. Credit counselors can discuss
strategies for improving your credit and thereby improving your
options for consolidating your debt. If you are in serious
trouble, then they can even help you establish a
debt management
plan.
If you have decent or good credit, then you have expanded
options for debt consolidation. These can include home equity
loans and signature loans. You may even be able to transfer
balances at lower interest rates to consolidate debt.
Just as your credit rating affects your options for debt
consolidation, the act of consolidating your debt can also
affect your credit rating. If you transfer balances, then your
credit score will likely drop by a few points. If you apply for
a personal loan or home equity loan, you should also expect a
drop in your score. Furthermore, if you chose to continue
racking up debt on low balance credit cards after consolidating
your debt, then you are really in store for a reduction in your
credit rating.
A drop in your score is not necessarily a disaster. If you
know that consolidating your debt will help you save money and
pay the debt off faster, then your score will likely rebound
quickly as you reduce your debt and will soon become even
higher. Make sure that you evaluate your reasons for seeking
debt consolidation. Once you have found your best option, stick
with it and monitor your progress.
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