How Does A Debt Consolidation Loan Affect One’s Credit Score?
Do you have debt and find it is stopping you from reaching financial goals you have set? If so, it’s time to find a way out from under these obligations. One option is to declare bankruptcy but doing so means the person must report it on various financial documents in the future. Debt settlement is likewise an option but it also has numerous drawbacks. For this reason, many people look to a debt consolidation loan to resolve their financial issues. However, people need to know if there are drawbacks to taking out a loan of this type. For example, how will this affect a person’s credit score?
The Credit Score
There is no one answer as to how this will affect a person’s credit score. For example, a person who takes out this type of loan, makes the payment each month on time, and doesn’t take on new debt will likely find his or her score improves over time. However, some people obtain the loan, watch their credit score rise just enough to secure new credit and take out another credit card or loan. They then get into a similar situation and their debt increases. As a result, their credit score drops. Keep this in mind and make a plan for the future before obtaining the loan so new financial issues don’t arise.
Why Choose This Option?
First and foremost, a person finds their financial situation becomes easier to understand. When multiple creditors are owed and each has a different interest rate, it can be hard to know how much one will actually pay when settling the debt. Furthermore, with multiple bills come due each month, a person may unintentionally overlook one. This leads to penalties, late fees, and possibly an increase in the interest rate. With a debt consolidation loan, only one payment is due each month so it is less likely to be overlooked.
Go online to learn more about debt consolidation loans and their many benefits. Individuals who choose this option find their finances become much easier to track and the collection calls stop. Furthermore, they can begin working on ways to eliminate the debt in a shorter period of time as they have a better picture of where they are and where they want to go. Consider this option if you have debt that you are struggling to pay. Many find this solution is ideal for their situation.