Multiple debts will not only affect your ability to save money but it also makes repayments problematic. If you miss even one payment, there is a chance your credit score may get affected. So, what do you do if you are unable to keep track of so many different payments every month? Well, you could consider debt consolidation, which involves combining multiple debts like your personal loan, credit card balances, medical bills, etc., into a single loan.
Does Debt Consolidation Affect Your Credit Score?
Yes, debt consolidation will affect your credit score. If you are taking a new loan or credit card to consolidate your debts, the creditor will perform a hard inquiry into your credit history before approving your new loan/card, which will cause your credit score to dip. However, once your debts are consolidated, the repayments will become a lot easier, which will lead to your credit score improving.
Advantages of Debt Consolidation
- Easier to manage payments: Rolling multiple debts into a single payment can make a lot easier for you to manage your payments.
- You can repay your loan faster: If your new loan has a lower term and interest rate, you will be able to repay your loan a lot faster. This will help you save a good amount of money on interest.
- Helps improve your credit score: Over some time, if you keep making your payments as per schedule, your credit score will improve.
- You can save money: Loans like credit card debts and payday loans have high-interest rates. If you are repaying such loans, there’s a good chance that you are spending a lot of money on the interest. Given this, consolidating your debts into a new loan that has a lower interest rate can help you save money.
Debt Consolidation Options
Some of the popular debt consolidation options include personal loans, balance transfer credit cards that have a 0% APR, and home equity loans. Regardless of which option you choose, ensure that you weigh out the benefits and associated costs. It’s also important to read through the fine print of the new loan, so you are well aware of all the terms and conditions.
