|
What Is Debt Consolidation? Debt consolidation is for people who have over-extended themselves in credit card debt, installment loans and other revolving credit obligations. They find themselves in a position of not being able to meet the minimum payments on these debts or, even if struggling and making the payments, no significant reduction in their total debt amount. Consolidating all of their debt into one loan, with a smaller monthly payment, is often the answer. They can perhaps do these themselves, by attempting to get one large loan, however, the credit score is often too low to allow this. Some lucky people can borrow from a relative at a much lower interest rate. When these two options are not available, it may be time to speak with a debt consolidator. Professional debt consolidators are in the business of handling this issue for people, and they provide a variety of services dependent upon the need. The end result is the same - you have one payment which is lower than all of your previous payments combined.
Effect on Credit Score If you are able to obtain a large loan which pays all of your creditors in full, that is, the entire amount owed them, your credit score may actually rise. This is because the report will show each of these debts paid in full with the important words "as agreed" attached as a comment. To maintain the higher score, you will need to make the payment on your new loan on time every month, and, indeed, pay a bit early or pay more than the minimum. Everyone is happy. Sometimes, you will need to negotiate a smaller total debt amount from creditors. Bill consolidators can assume this task for you, because they are objective, experienced, and usually good negotiators. Further, they know exactly how to reach the people who can make the decision to lower the total debt amount. This is a great service if you need it, but understand that there will be a fee for the service, tacked onto your monthly payment. They do not work for free unless a part of a non-profit organization supported by grant money of some sort. If you successfully obtain reductions of the total debt amounts, and the bill consolidator is able to obtain a consolidation loan for you, your creditors do get paid off. However, your credit report will show that it was a negotiated settlement for less than the original amount owed, and your score will drop. The amount of drop will depend upon how many creditors report this and the total amount of debt that was reduced. Recovering from a credit score drop following a bill consolidation is not as difficult as recovering from Chapter 13 or Chapter 7 bankruptcies. The key is to pay off the debt consolidation loan as quickly as possible, always on time, and not to obtain any new credit until more than half of the consolidation loan is paid off. Once you get below that halfway mark, the score pops again. For a non-profit nationwide debt consolidation company with certified credit counselors, please call 877-884-0880 now. You can get out of debt today. |
