Is consolidating debt bad for your credit
Reducing monthly payments to a single source sounds good to almost anyone in dire need. It works only if the debt consolidation loan reduces the interest rate for your debts, in addition to cutting back the amount you pay each month.So, it’s important to be organized and have precise financial records.
When that stack of bills suddenly goes away, it could bring a false sense of security.Debt consolidation is combining bills from multiple sources – typically 4-5 credit cards – and using one loan to pay off all the bills.The immediate benefit should be lower monthly payments and a lower interest rate. And what if writing just one check a month suddenly saved you more than $1,000 each month? It uses one large loan to pay off the combined balance of credit card debt and small loans.If you have trouble making ends meet, if your stack of monthly bills is covering every inch of the kitchen table, if the money coming in doesn’t come close to the money going out, it would seem like you’ve officially reached the end of your financial rope. Even people who practice financial responsibility can find themselves backed into a corner. There are all types of debt consolidation loans, even if you have bad credit. Sometimes, it’s an unexpected life event, such as a major medical crisis or a bad divorce.Imagine you owe $5,000 on a credit card with an interest rate (APR) of 18.9% and you are paying $200 a month toward the debt. You are paying $355 a month for that There’s also a $5,000 debt on the braces for your 12-year-old son. The average APR on a personal loan in August 2017 was 9.76%, according to the Federal Reserve. To receive our hypothetical 6.99% APR, your credit score would need to range somewhere in the mid-to-high 700s. There are closing fees, service fees, pay-off dates and other “fine-print’’ charges.
You also owe $2,000 a month on a credit card with a 15.9% APR and pay $150 a month on that one. His smile is well worth the 9.0% APR, which means you are paying $150 per month. Here are the three primary options for where to get a debt consolidation loan.
Remember, as with all lending institutions, the rates will vary.
There’s an online option called “peer-to-peer lending,’’ where companies allow investors to lend directly to consumers.
An added benefit, besides simplifying the monthly bill-paying routine, is a big boost in your credit score.
That’s what happens when you pay off credit cards in one swoop.
Keeping track of multiple payments to multiple creditors can be a dizzying exercise.