When you’re trying to get rid of your soaring credit card debt obligations, the first thing that comes to our mind is debt consolidation. Debt consolidation, with its pitch of lower monthly payments and reduced interest rates is usually too tempting for the debtors and this is the reason behind the large number of debtors who are seeking help of these firms and combining their debts into a single monthly payment. Getting a new loan in order to repay your previous high interest debt is certainly a good option but did you wonder whether or not this could help your credit score? Most debtors are worried about the impact of the debt relief options on their credit score as they’re concerned about their future ability of borrowing new lines of credit. Have a look at the ways in which different credit card debt consolidation methods will have an impact on your credit score.
When you get a new loan to pay back all your other debts, getting a new debt consolidation loan is certainly one of the most popular way. This is certainly the best thing that can come to your mind when you drown in debt but locating a loan with good terms and conditions is yet another task for a debtor. There are peer-to-peer lenders and some other kind of lenders from whom you can get debt consolidation loans. Initially, this might have a bad impact on your credit score but as soon as you start making payments towards the installment loan, you can actually benefit as there will be a rise in the credit score.
The impact of debt management plans on your credit score
If you’re still not in the red and you’ve chosen to get help of a credit counseling agency, you can repay your debt through a debt management program. The credit counselors negotiate with your creditors and slash off the interest rates so that this facilitates the entire debt repayment schedule. The monthly payments are supposed to be offered to the credit counselors and they disburse it to the creditors. If the counselor asks you to close all your credit card accounts, this will have a bad impact on your credit score. FICO will actually ignore any notation that you’re repaying your debt through a counseling program.
The credit card balance transfers and its impact on your credit score
Transferring your high interest credit card balance to a low rate can be yet another way to consolidate. However, when you decide to go through this route, you have to make sure that you transfer the entire balance within the introductory period. The impact on your credit report will depend on the way you use the balance transfer. In case you’re using a considerable amount of available credit to combine balances, your credit score might drop.
Therefore, the way in which you use a debt consolidation option will have an impact on your credit score. Check your credit score before opting for debt consolidation and then again after combining your debts, you should take steps to take out a copy of your report in order to check where you stand.