Debt Consolidation and Credit Ratings
Debt consolidation can be a valuable option when you are experiencing high interest rates on consumer debt. There are several different types of debt consolidation, and your access to those options will depend on your credit rating.
If you have poor credit, then unsecured personal loans and home equity loans will not be possible under normal terms. You can however get help through credit counseling, especially if you have a poor credit rating. Credit counselors can discuss strategies for improving your credit and thereby improving your options for consolidating your debt. If you are in serious trouble, then they can even help you establish a debt management plan.
If you have decent or good credit, then you have expanded options for debt consolidation. These can include home equity loans and signature loans. You may even be able to transfer balances at lower interest rates to consolidate debt.
Just as your credit rating affects your options for debt consolidation, the act of consolidating your debt can also affect your credit rating. If you transfer balances, then your credit score will likely drop by a few points. If you apply for a personal loan or home equity loan, you should also expect a drop in your score. Furthermore, if you chose to continue racking up debt on low balance credit cards after consolidating your debt, then you are really in store for a reduction in your credit rating.
A drop in your score is not necessarily a disaster. If you know that consolidating your debt will help you save money and pay the debt off faster, then your score will likely rebound quickly as you reduce your debt and will soon become even higher. Make sure that you evaluate your reasons for seeking debt consolidation. Once you have found your best option, stick with it and monitor your progress.