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Does Debt Consolidation Affect Your Credit Score?

Does Debt Consolidation Affect Your Credit Score?

With the current state of the economy right now, many people are turning to debt consolidation as a way to bring their finances in order. If you may are thinking about debt consolidation, you may be wondering what effect it has on your credit score. 

Regardless of your financial crisis which may include unemployment, health issues, mismanagement of funds andlate payments. Debt consolidation may still bethe best option to relieveyou of that financial burden.  But the question still remains, does debt consolidation affect your credit rating?

When You Go It On Your Own

You need to understand that when you decide to go through the debt consolidation process on your own, the creditor may refuse to work out things with you. During the negotiation process, you will seethat your credit score fallsand the interest on the amount owed and due to late payments.

In some instances, you may find that it would take up 4-5 months for the program that you agree onto take effect after the start of the debt consolidation process. During this time, your debts will continue to pile up and your credit report will show that you either missed a payment or you were late to make the payment.

Depending on your amount due and circumstances, it may be in your best interest to search for a certified credit counselor or join a reputable debt consolidation program as soon as possible. This is a good idea for those who have debts that range from $5,000 and below.

Other Benefits When You Go With A Debt Consolidation Company

If you try to negotiate on your own, you may find that you have paid more money than when you choose to deal with an advisor or consolidation company. Be careful when choosing a consolidation program by ensuring they have a good reputation. If your loan has been fully recovered, the lender may issue you with another card which might have a higher interest rate. And for this reason alone, you need the help of to help you move in the right direction. 

Another benefit of going with a company then you will only need to make a small payment to your bank each month, unlike many smaller ones with large interest rates and late fees that accumulate quickly.

If you decide to take up a low-interest-consolidation loan and you stick to the repayment amount on the credit cards you are paying off, it may not affect your credit score as much. All you have done is to get an additional loan but with better terms. While this does not reduce your debts, it makes the repayment much easier. Plus, you can make one payment a month and better manage your budget and debt.

Negotiating terms

In case your debt consolidation plan needs foryou to negotiateand lower your debt and make a lump sum payment, then this will lower your credit score rating. The reason behind this is the fact that you are borrowing more than you can afford and that you’re behind schedule. The repayment of earlier debts brings them to the forefront which in turn reduces your credit rating. However, this rating decline is only temporary and your score will increase over time if you work on it.

Having the better solution

By consolidating your debt, you make a good decision to pay your debtors and improve your credit rating. But, you cannot improve your credit rating overnight. Remember that a lump sum payment is not the most desirable way to improve your credit; though it is recommended alternative for those in bad credit situations. Your credit standing follows you wherever you go, so it’s important that you keep your bills and debts under control so you do not end up in a bad situation where you need to consolidate.

Debt consolidation is a viable alternative, but it takes time to negotiate terms and agreements with creditors. While there are debt consolidation companies that charge you a fee for their services, you can repay your loan without paying anyone else if you plan properly and make wise decisions.

Does debt consolidation affect your credit score?

Short answer, It really depends on how you tackle the problem and the amount due. The disadvantages include service fees, only certain accepted defaults, and high-interest rates. If done correctly and on time, the effect on your credit score can be minimal and only for a short duration.


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