Debt consolidation is plagued with a poor rep. many believe it is no better than filing bankruptcy. With all this scary information surrounding debt consolidation it can make people leery.
Debt consolidation does not have the same impact as filing bankruptcy. Debt consolidation can actually be helpful for reducing or eliminating your debts. Debt consolidation primarily is used to pay back all or a portion of your debts and bankruptcy normally means you do not pay back any of your debts.
There are different types of debt consolidation and they have different impacts on your credit score.
Debt Management programs are available to help eliminate your debt but there is a catch. The account reps will contact your creditors and negotiate with them to accept a lower amount than you owe as a payment in full. This program is the most common for people who no longer can afford their payments and are getting slammed with late fees and penalties. This type of debt consolidation is most likely where the poor reputation came from as it does affect your credit score very negatively.
A debt consolidation loan is the better way to go; you can reduce or eliminate high interest debts. The loan is made to pay off your debts in full and you will not default with your creditors in any way. There will be no negative impact on your credit score using this type of debt consolidation.
Credit history length is measured for part of your credit score. When trying to get a good interest rate on a loan every small point counts. When paying creditors in full and closing accounts your credit history length will be shortened. Older accounts have a more dramatic effect. Even if you pay an account off, leave it open, especially the older ones.
If you are planning on applying for a mortgage loan or any type loan you should obtain your full credit report that includes your credit score. Keep a close eye on your credit score for any effects each time you pay a creditor in full. Applying for the loan while your credit score is the highest will result in the best possible interest rate.
Keep in mind that if you pay a creditor a settled amount that is lower than the amount owed you will create a negative drop for your score. When you are paying the creditor the full amount owed it will result in a positive impact on your credit score.
Debt to income ratio should be considered before you apply for a new loan. Make certain you have paid all accounts on time for at least three months. Allow older accounts to remain open even after you paid them in full to not decrease your credit history length.
Debt consolidation is an excellent way to eliminate high interest debt when used correctly. But anytime you default on any part of your debt your credit score will drop considerably. - 31377
Debt consolidation does not have the same impact as filing bankruptcy. Debt consolidation can actually be helpful for reducing or eliminating your debts. Debt consolidation primarily is used to pay back all or a portion of your debts and bankruptcy normally means you do not pay back any of your debts.
There are different types of debt consolidation and they have different impacts on your credit score.
Debt Management programs are available to help eliminate your debt but there is a catch. The account reps will contact your creditors and negotiate with them to accept a lower amount than you owe as a payment in full. This program is the most common for people who no longer can afford their payments and are getting slammed with late fees and penalties. This type of debt consolidation is most likely where the poor reputation came from as it does affect your credit score very negatively.
A debt consolidation loan is the better way to go; you can reduce or eliminate high interest debts. The loan is made to pay off your debts in full and you will not default with your creditors in any way. There will be no negative impact on your credit score using this type of debt consolidation.
Credit history length is measured for part of your credit score. When trying to get a good interest rate on a loan every small point counts. When paying creditors in full and closing accounts your credit history length will be shortened. Older accounts have a more dramatic effect. Even if you pay an account off, leave it open, especially the older ones.
If you are planning on applying for a mortgage loan or any type loan you should obtain your full credit report that includes your credit score. Keep a close eye on your credit score for any effects each time you pay a creditor in full. Applying for the loan while your credit score is the highest will result in the best possible interest rate.
Keep in mind that if you pay a creditor a settled amount that is lower than the amount owed you will create a negative drop for your score. When you are paying the creditor the full amount owed it will result in a positive impact on your credit score.
Debt to income ratio should be considered before you apply for a new loan. Make certain you have paid all accounts on time for at least three months. Allow older accounts to remain open even after you paid them in full to not decrease your credit history length.
Debt consolidation is an excellent way to eliminate high interest debt when used correctly. But anytime you default on any part of your debt your credit score will drop considerably. - 31377
About the Author:
Susan Reynolds is the webmaster for a leading South African Debt Consolidation Portal. For more information visit: http://www.debtconsolidation123.co.za/
