NEW-YORK – May 23, 2022 – (
Millions of people are struggling with their debt and can’t seem to get out of its weight. One option that some might consider is debt consolidation. Debt consolidation can help you reduce your debt and save money. How? When you consolidate several debts into a single monthly payment at one interest rate, less interest accrues and it’s easier to progress. But is it worth it and what does it do to your credit score? Here’s what you need to know.
What is debt consolidation?
Debt consolidation consists of combining several debts into a single loan. You will usually consolidate your debts into one loan and then repay that monthly payment to the lender. It can be a great way to reduce your overall debt burden and save money on interest payments.
Consolidation loans usually come with a lower interest rate than you would pay on separate loans, which can be a cost-effective way to reduce your debt.
Can debt consolidation hurt your credit rating?
Most people think that getting a debt consolidation loan will drastically lower their credit score because of the high pressure added to their report. The truth is that credit inquiries/difficult inquiries only make up 10% of your total score; the benefits of removing your credit card debt will more than offset the slight drop caused by strong traction. So if you’re wondering if taking out a loan will cause lasting damage to your credit report, it won’t. On the contrary, debt consolidation loans can help you improve your credit score in several ways.
First, it reduces the amount of debt you have overall. This will lower your credit utilization ratio, which is essential in determining your creditworthiness; it counts for 30% of your overall mark.
Second, consolidating your debts into one loan usually results in smaller monthly payments. This means you’ll have more money available for other things, like paying off debt or investing in yourself.
Finally, debt consolidation can help improve your credit history because it shows that you are able to take on more responsibility and can manage your finances responsibly by making monthly payments on time.
How can I benefit from a debt consolidation loan?
The best way to qualify for a debt consolidation loan is to have a good credit score, around 700 or higher. If you don’t have a good credit score, you may qualify for a loan if you can show that you are able to meet your monthly payments and have a solid repayment history.
The best way to find a lender is to shop around and compare rates. You can also contact your credit union or other lending institution to see if they offer consolidation loans. They may be more willing to work with you since you already have a banking relationship with them.
The bottom line
Overall, debt consolidation can be a great way to reduce your debt and save money. If you’re considering debt consolidation as an option to reduce your debt, it’s important to understand the potential impact it has on your credit score before deciding if it’s right for you.
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