It might be out of your control but you are behind on bills. You have done everything in your power to keep up with them, but they seem to keep piling up. Maybe you are unemployed because of the economic environment we are in or it's medical bills that seem to come out of nowhere.
Your situation could have been completely out of your control, but either way, your debt seems to keep piling up. So how do you fix this problem? For many people, a bill consolidation loan could be what you need to help with your debt.
What Exactly Are Debt Consolidation Loans?
A debt consolidation loan is fairly simple. It is a new loan that will pay off your other bills. This loan can really simplify things for you by allowing you to only make one payment instead of multiple payments to your bill companies every month. Typically this is the easiest way to handle your bills every month.
When you group your bills together into one simple loan you can sometimes get a lower interest rate or even lower your payment.
Here is simple example: Joe has five different bills each with their own interest rate, ranging from 12% to 26%. Joe uses a debt consolidation loan and his new interest rate on the loan is 14%. Joe now has one simple payment and is saving money on the interest.
Does A Debt Consolidation Hurt Your Credit?
Typically, debt or bill consolidation does not impact your credit score negatively. However, what does impact your credit negatively is the application that will run your credit to see if you qualify for the loan (also known as a hard inquiry).
This will lower your credit score by just a few points. At the end of the day, paying off your bills/debt and more importantly paying them on time, will help increase your score.
If your current situation directs you to get a debt consolidation loan to lower high interest rates, avoid late payments and fees, a credit check that causes your score to drop a few points is not your biggest worry.
It is still important to be aware of where your score is at and how losing a few points will affect you. When you pay your bills on time, your credit score will improve with credit card consolidation.
How Do You Know If A Debt Consolidation Loan Is Right For Your Unique Situation?
The purpose of debt consolidation loans is not always immediately evident. You may already be wary of taking on more debt, but in fact there are many great reasons to use them.
Reducing your total debt is single handedly the most import thing. So only use a debt consolidation loan if it truly can help you accomplish that goal.
It shouldn't be a method to make even more a credit available to you, because if you keep taking on more debt, your situation becomes even more dangerous. It should be used to make the process of managing your current debt easier.
Debt consolidation loans have the potential to get your bills under control and give you some breathing room. A loan that can lower your monthly payments or even lower your interest rate may be the fix that you have been looking for.
Before you make a final decision, make sure to do your research so that you can make the wisest decision for your unique financial situation.