How Will Consolidating My Debt Impact Me
If you are worried about the impact of consolidating your debt you may be curious what impact that will have on your credit score. In particular, if you go through a Debt Management Program, or DMP, your credit is more likely to go up and your debt will shrink much faster. You can also consider a debt consolidation loan, which is an installment loan, to improve your credit in the long term. Using either of these options is a good one because you are very likely to pay lower interest rates than if you paid on your own.
The first thing to think about when deciding to go through a Debt Management Program is deciding what credit counseling agency you want to go through. If you go through an unreputable source you will likely damage your credit, rather than helping it. While you may be a person who wants to give companies a chance to prove themselves, this is not a situation where this is a wise approach. You should also consider why you want to consolidate your debt and which accounts to leave off the table should you choose to consolidate. In most cases, all your credit accounts are closed if you choose a Debt Management Program.
You should also consider the length of time involved in paying off your debts and what you are comfortable with. Consolidating through a Debt Management Program can take anywhere from one to five years, with three to five years being the average.
A debt consolidation loan is the most popular way to consolidate debt and offers some significant advantages, even if you have a poor credit score. Using an installment loan (a loan with fixed monthly payments) will benefit your credit in the long term because you are likely going to use it to pay off cards that are near their limit. This lowers your debt to income ratio, which is looked upon favorably by financial institutions and credit reporting agencies alike. However, it is important to remember that any new debt may cause a short term dip in your credit score. Luckily, the dip is temporary as you pay off the loan. As with a Debt Management Program, you want to choose a financial institution with a sterling reputation. With these types of loans there are scams everywhere you look.
Overall, debt consolidation is very beneficial to your credit should your debt get away from you. If you are dedicated to it, the on time payments you make will be reflected positively in your credit report and you will begin to see your score improve. You can talk to a credit counselor about which option is right for you. A Debt Management Program gives you a structured set up with follow-up from your program administrator. Using a debt consolidation loan pays your debts off more quickly and begins to reflect a positive impact on your credit score more quickly. Either way, debt consolidation is an excellent option if you are having difficulty managing your debt.