How Does Debt Consolidation Affect My Credit Score?
If you have more than $15,000 to $20,000 in unsecured debt, you are probably always thinking of the best ways to get out of debt, faster. In fact, the very thought of being debt-free is likely on your mind almost all the time. Even when you are not thinking about it directly, the thoughts of your current debt burden can sneak into your daily life at any time.
Getting out of debt does not have to be difficult. In fact, there are a number of viable options that do not require something drastic like declaring bankruptcy.
Debt consolidation is one excellent choice. Consolidation simply means rolling all of your debt into a single loan and paying off your other lenders. However, you should take the time to learn all of the facts first.
If you are wondering, “How does debt consolidation affect my credit score?,” here are the facts:
1. Debt consolidation can boost your credit score: Your credit score is based upon a number of factors. One of the most important factors is the ratio between how much debt you have and how much total credit has been extended to you. By consolidating your debt, you can pay your debt down faster, thereby improving your credit score over time.
2. However, your credit score can be hurt if you open more credit cards: If you do decide to consolidate your debt, you must avoid the temptation to start spending irresponsibly again by charging up your credit cards.
3. Consider waiting to consolidate until you improve your credit score: The debt consolidation lender will determine your interest rate based in part upon your current credit score. It could save you thousands of dollars in interest payments over the next few years if you work on improving your credit score before going through consolidation.
Debt consolidation is a great bet for people concerned about their high amounts of debt. In your case, it may be wise to spend some time and energy improving your credit score before consolidating your debt.