Most of the Americans are struggling with debt problems and are looking for ways to avoid filing for bankruptcy. Are you one of them? Do not be disheartened when going through a financial crisis; remember to take it as a temporary setback, because nothing lasts forever. The quickest and the easiest solution to debt problems is debt management program. A debt management program can be of various kinds, like debt consolidation, debt negotiation, debt settlement etc.
A debt consolidation is ideal for you, if you are juggling a lot of credit card debts. Consolidating your debts will help you save a good amount of money. It will also be easier for you to take charge of one single debt, that too with a much lower rate of interest.
However, the question that arises is, whether consolidating debts will harm your credit scores?
Once you get your debts consolidated with the help of a debt consolidation program, you just pay one monthly amount towards your consolidation loan. The consolidation firm then pays the creditor on your behalf. Most of the debt consolidation loans last for around 5 to 7 years. During this time, the note that appears on your credit report indicates that you are repaying your debts through a debt consolidation plan. This note remains in your credit report until you pay the debts in full. However, that doesn’t harm your credit scores. Usually debtors with bad a credit record opt to consolidate debt for improving their credit file. But if you are already in a debt consolidation program, there might be certain problems in this regard. It is often seen that many debt consolidation firms do not allow you to apply for any additional credit card while you are a participant in the debt consolidation plan. Also, due to the note on your credit report, you might face difficulty in applying for a new credit card. Just remember, that the creditors are not bothered about your credit report much. They are more concerned with your credit score instead.
What might hurt your credit score?
Participating in a credit card debt consolidation plan will not hurt your credit scores. However, during debt consolidation, your payments to the creditors will reach through the debt consolidation firm. It is therefore imperative that unless you choose a trustworthy firm, you might rake up late payment notations on your credit report causing your credit scores to drop.
Certain debt consolidation plan requires you to close all the credit card accounts. Although that’s a boon in disguise, as it will resist further expenditures, it will also negatively affect your credit score. Closing of your credit card accounts will reduce your total availability of credit. This will in turn raise your credit utilization ratio.
Therefore, to save your credit scores from being harmed, try and find such a debt consolidation service which does not require closure of your credit card accounts.