Debt Consolidation Tips & Tactics

There are millions of Americans who are submerged in an ocean of credit card debt and are constantly looking for a solution to eradicate their debt burden and live debt free. Once they’re able to liberate themselves from the clutches of credit card debt, they can soon become financially fit. In pursue of debt elimination, they enjoy the benefits of various debt management programs or debt consolidation plans. But despite getting effective debt help from such organizations; their main area of concern remains the effect on their credit score.

As today’s lending industry is entirely based on credit, all the debtors are aware that without a good credit score it is almost impossible to stay creditworthy in the near future. Without good credit score, you can never achieve a loan with favorable interest rate that can be in accordance with your budget. Thus, before resorting to debt consolidation, make sure you consider whether or not it hurts your credit score in any way. If you’re oblivious of the credit impacts of debt consolidation, read on.

Is it true that debt consolidation affects your credit score?

‘Debt consolidation may affect your credit score’- This is one of the most common myths that hover in the minds of the struggling consumers in the US. And once your credit record is damaged, you will be restrained from seeking further lines of credit at an affordable rate within your budget. But this is far from being true. Debt management plans and consolidation of debt has very little effect on your credit score. There are many instances when the credit score of a consumer has not fallen due to a consolidation but risen after becoming current on the monthly payments.

How is it possible to boost your credit score with your consolidation efforts?

If you enroll yourself in a debt consolidation program, your entire debt amount will be handled by a third party. The debt consultant in the debt consolidation company will take over all the responsibilities of negotiating with your creditors, arbitrating with them and even making payments to them. The debtor will not have to make any payments to the debt consolidation company once he signs up. As this process will last for a few years, your credit report will certainly show that you’re making timely and regular payments through a consolidation company. Until you repay your debts in full, this report will tend to stay on your report but would not harm your score in any way.

Can you apply for new credit while getting your debts consolidated?

Your debt reduction effort might not have an adverse impact in your credit score but it would bar you from taking out new loans only during the time you’re consolidating your debts. In fact, most debt consolidation programs will ask their clients not to engage in any further kind of loan programs while they’re enrolled in debt consolidation. Creditors will never grant you a loan as your credit report will show that you’re going through debt consolidation.

Things that can hurt your credit score while you’re consolidating your debts

• Late payments: Though it is a fact that debt consolidation does not hurt your credit score, yet making late payments to the debt consolidation company can hurt your score. You must be a loyal creditor and make timely payments to your debt consultant to protect your score.
• Closing accounts: If the debt consolidation company tells you to close any accounts, this might hurt your credit score. Try to look for a company that does not ask you to close your credit card debt accounts.

Thus, to conclude, debt consolidation will never have a negative impact on your credit score. But make sure you choose a reputed company and also ensure that the payments reach your creditors in due time to safeguard your credit score.