What is Debt Consolidation? Debt consolidation is basically taking out a single loan to cover the costs of multiple loans. This allows those that are in debt to reduce their multiple payments into one lump payment in the hopes of reducing stress and making the bill more bearable. This is often done through a series of lower interest rate yielding secure and fixed interest, as well as the simple convenience of only footing a single bill rather than several. By way of debt consolidation, those in debt are able to feel less stressed and more in control of their lives, allowing themselves to have only one debt repayment bill is allowing them to have their lives back from the stress of debt.
How Does Debt Consolidation Affect Your Credit Report?
This debt management program can have an adverse effect on an individual's credit score if the person in debt is not careful. Some companies are looking to scam people just as often as others are looking to help those in debt. The first step when considering the consolidation of your financial obligations is to contact the creditors. Some debt consolidators can destroy credit by identity theft by stating that they will take care of creditors. This is false because creditors must be notified by the one in debt.
Though it is important to make sure the credit card companies are on board, it is also important to watch out for them as well. Credit card companies are all about people getting out of debt because this frees those people up to get into more debt.
A person's credit score can potentially be destroyed by debt consolidation if not careful. Not only there are some fraudulent companies out to take advantage of people, there are also penalties on a credit score if regular payments are not made. Once an account has been negotiated and set up, payments must be made on time regularly or else the credit score of an individual will subsequently drop.