Bad debt is one of the most difficult things to contend with. Most people turn to debt consolidation for help but others worry that by taking out a loan, they could be doing more damage to their credit history. But can debt consolidation really be bad for your personal credit? Should you skip consolidation and find other solutions?
Debt Consolidation And Your Credit Report
It is true that a debt consolidation loan will be reflected in your credit report. Initially, it can create a negative impression to future lenders. Seeing a consolidation loan in your report is not exactly very impressive since it proves that you’ve had problems with debt in the past. Your credit score will go down by a few points especially during the early phase of consolidation.
Obviously, this isn’t the time for you to try to apply for personal loans or credit cards. With a consolidation loan under your name, lenders would most likely be hesitant to extend you credit unless you go with a bad credit loan.
Nevertheless, it doesn’t mean that a debt consolidation will permanently be damaging for your personal credit.The advantage of consolidating debts is that you can have a breather and really focus on debt repayment. Since all your creditors have been paid off, you can avoid the additional interest rate fees that each of your creditors can impose on you. With just one interest rate to pay, you can significantly reduce your monthly payment.
Use Your Debt Consolidation Loan to Rebuild Bad Credit
The positive side about acquiring a debt consolidation loan is that you are given the opportunity to rebuild your damaged credit. As long as you can submit your monthly payments on schedule, you will slowly but surely improve your credit rating.
It is very important for someone under a loan consolidation program to put debt repayment as a top priority. This isn’t the time to think about replacing your old car for the latest model. This isn’t the time to start thinking about purchasing new gadgets charged to your credit card. To ensure that you will not be missing any payment from your loan, you should avoid incurring new debts which can add burden to your load.
Never forget that debt consolidation loan is a secured debt. By submitting your home or property to your lender, you are using it as guarantee for repayment. In case of default, you could lose your home to your debt consolidation company.