The impact of debt consolidation on credit
Florida residents who are thinking about ways to regain control of their finances may want to consider debt consolidation. Depending on how the debt is consolidated, it may act to reduce interest paid on a balance without ruining a person’s credit. For instance, taking out a new loan to pay off current debt may actually improve a credit score in the long run. This is because the new loan may reduce the amount of credit a person is using.
Those who have poor credit may want to look into a debt management plan, or DMP. While debt balances aren’t consolidated, a debtor generally makes only one payment per month to the agency that offers the plan. From there, the money is distributed to creditors. If a debtor has good credit, a DMP may harm their credit scores, and debtors are not allowed to use credit cards while participating in one.
A credit card balance transfer may be an effective way to consolidate credit card balances. Transferring balances to cards with lower interest rates may help a debtor pay off the principal balance faster. However, using the majority of a credit card balance to consolidate other debts could reduce a person’s credit score. Scores may also drop temporarily after applying for a new card.
Filing for Chapter 13 bankruptcy may be an effective solution for those looking to get a handle on unsecured or secured debt. It may allow debtors who have secured debts such as a mortgage or car loan to keep property during the repayment period. However, lenders are not obligated to forego a foreclosure or repossession once it ends. An lawyer may be able to talk more about the credit consequences of bankruptcy and how long it might stay on a credit report.