Improve Your Credit Rating With Debt Consolidation
By david keane
Aug 27, 2011 - 5:17:16 AM
Debt consolidation is all about merging several loans into one single debt. Lending companies usually combine unsecured debts in such a way that the borrower would be liable to pay just one payment every month instead of making several different payments.
The main aim of consolidation loan companies is to reach an agreement with your creditors regarding the interest rates and monthly payments. They try convincing the creditors to lower the rate of interest and reduce monthly payments. If your funds are limited then creditors can also be convinced to reduce the overall loan amount, something that you can easily afford to pay. The lenders try to work out a program that can be beneficial for both the creditor and you. Your creditors want their money back while you want to get debt free as early as possible. Therefore debt consolidation loan companies try negotiating the terms with creditors in a way that can benefit both parties.
The extent by which your interest rate and monthly payment would reduce depends on your ability to pay. The lender would take your income and expenses into consideration before reaching a conclusion. The results are then taken to the creditor as proof which becomes the basis for terms of the agreement. Normally companies agree to reduce the overall loan amount to 25% which is a significant amount. If your company offers to reduce the amount to a lesser extent then drop the idea of dealing with them and find another one with more favorable deals.
With debt consolidation program, you will be able to repay your overall loan in 4 to 6 years, depending on how large the loan amount is. The longer the repayment period will be, the lesser the monthly payments you will have to make. Another benefit of joining this program is that your creditors will cease making harassing calls to you. This program actually helps to take stress of you so that you can live your life tension free. You would not have to go through the hassle of catching up several payments and dealing with too many creditors.
When you are unable to meet your payments on time, your credit score gets affected. If you are considering improving your credit rating then debt consolidation would definitely help you out.
If you use a lot of credit cards then it would have a negative effect on your credit ratings. One thing credit card users are usually unaware of is the balance you carry on your cards is actually 25% above your credit limit, meaning you are being penalized on your credit score. With consolidation loans, you will be able to improve your credit history.
Debt consolidation does not only mean consolidating credit cards but you can also choose to merge your car or education loans and pay them off to improve your credit rating.
If you really want to improve your credit score then the best solution is to get rid of your credit cards and stop taking unnecessary loans. If you consolidate your debts now but later get caught up in the same scenario where you run your credit card limits then you will only make the situation worse.
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