Debt consolidation is plagued with a poor rep. many believe it is no better than filing bankruptcy. With all this scary information surrounding debt consolidation it can make people leery.
The truth is that debt consolidation is not the same thing as filing bankruptcy. Debt consolidation proves you are taking steps to pay back your debts. Debt consolidation when you pay back 100% or a portion of your debt and bankruptcy usually results in you paying none of the debt.
Depending on what type of debt consolidation you choose to do it will affect your credit score differently.
There are Debt Management programs that advertise the ease of eliminating all your debt. The agents actually haggle with your creditors pushing them to agree to a lesser amount owed. This method may be popular for some who cannot afford their payments no longer and need help reducing or eliminating it, it will affect your credit score very negatively.
A debt consolidation loan is the better way to go; you can reduce or eliminate high interest debts. The loan is made to pay off your debts in full and you will not default with your creditors in any way. There will be no negative impact on your credit score using this type of debt consolidation.
Your credit history length creates a portion of your total credit score. It is a small percentage but when you are working to get the best credit score possible it should be considered. When paying off your creditors in full and closing the actual accounts you may in fact be shortening your credit history length. Closing older accounts will have the largest impact. It is a good idea to pay the older debts in full but keep them open.
If you are planning on applying for a mortgage loan or any type loan you should obtain your full credit report that includes your credit score. Keep a close eye on your credit score for any effects each time you pay a creditor in full. Applying for the loan while your credit score is the highest will result in the best possible interest rate.
Keep in mind that if you pay a creditor a settled amount that is lower than the amount owed you will create a negative drop for your score. When you are paying the creditor the full amount owed it will result in a positive impact on your credit score.
Your debt to income ratio should be low enough to show you can afford a new loan payment before you attempt applying for a loan. Before you apply you should also make sure that all your payments are current for at least 3 months. Keep those older accounts open if you are planning to pay them off so it will not shorten your credit history length.
Debt consolidation can be a wonderful method for eliminating high interest debts if used wisely. Any time debt consolidation is used to negotiate debts it is still considered a default on the loan and your credit score will always be affected poorly. If you have to use a debt consolidation program be sure that it is your only option, you may qualify for a debt consolidation loan instead. - 29866
The truth is that debt consolidation is not the same thing as filing bankruptcy. Debt consolidation proves you are taking steps to pay back your debts. Debt consolidation when you pay back 100% or a portion of your debt and bankruptcy usually results in you paying none of the debt.
Depending on what type of debt consolidation you choose to do it will affect your credit score differently.
There are Debt Management programs that advertise the ease of eliminating all your debt. The agents actually haggle with your creditors pushing them to agree to a lesser amount owed. This method may be popular for some who cannot afford their payments no longer and need help reducing or eliminating it, it will affect your credit score very negatively.
A debt consolidation loan is the better way to go; you can reduce or eliminate high interest debts. The loan is made to pay off your debts in full and you will not default with your creditors in any way. There will be no negative impact on your credit score using this type of debt consolidation.
Your credit history length creates a portion of your total credit score. It is a small percentage but when you are working to get the best credit score possible it should be considered. When paying off your creditors in full and closing the actual accounts you may in fact be shortening your credit history length. Closing older accounts will have the largest impact. It is a good idea to pay the older debts in full but keep them open.
If you are planning on applying for a mortgage loan or any type loan you should obtain your full credit report that includes your credit score. Keep a close eye on your credit score for any effects each time you pay a creditor in full. Applying for the loan while your credit score is the highest will result in the best possible interest rate.
Keep in mind that if you pay a creditor a settled amount that is lower than the amount owed you will create a negative drop for your score. When you are paying the creditor the full amount owed it will result in a positive impact on your credit score.
Your debt to income ratio should be low enough to show you can afford a new loan payment before you attempt applying for a loan. Before you apply you should also make sure that all your payments are current for at least 3 months. Keep those older accounts open if you are planning to pay them off so it will not shorten your credit history length.
Debt consolidation can be a wonderful method for eliminating high interest debts if used wisely. Any time debt consolidation is used to negotiate debts it is still considered a default on the loan and your credit score will always be affected poorly. If you have to use a debt consolidation program be sure that it is your only option, you may qualify for a debt consolidation loan instead. - 29866
About the Author:
Susan Reynolds is a content coordinator for a leading South African Debt Consolidation provider. For more information visit: http://www.debtconsolidation123.co.za/
