Start Consolidating debt affect credit score

Consolidating debt affect credit score

Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.

Individuals usually work with a debt-relief organization or credit-counseling service.

These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors.) Freeman says that debt consolidation loans are most helpful for those who have multiple debts, owe $10,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty making payments or are unable to negotiate lower interest rates on loans.

Secured loans are backed by an asset of the borrower’s, such as a house or a car, that works as collateral for the loan.

Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.

This works out to $5136.88 being paid in interest alone.

If the same individual were to consolidate those credit cards into a lower-interest loan at an 11% annual rate compounded monthly, he or she would need to pay $932.16 a month for 24 months to bring the balance to zero.

If you were to pay off each credit card separately, you would be spending $750 per month for 28 months and you would end up paying a total of around $5,441.73 in interest.