Could a debt consolidation loan improve my credit rating?
Debt consolidation loans are designed to allow you to turn multiple debts from various sources into one convenient, affordable payment. You can use debt consolidation for paying off several credit cards, payday loans, store cards, overdrafts or practically any other form of small debt.
However, if you’re trying to get your finances back on track, you might well be asking yourself “will taking a debt loan affect my credit score?” – and the answer is yes: in a positive way, if used properly.
If you’re currently struggling to manage several debts at once, it’s likely that you’ll be late with repayments from time to time. This can be hugely detrimental to your credit score, in which case you may find it easier to pay off what you owe with a debt consolidation loan. Several debts, one helpful loan: it’s that simple.
Debt consolidation loans: are there any downsides?
There are lots of great reasons to take out a debt consolidation loan. However, if you’ve already got a bad credit rating, you might struggle to find a lender willing to offer you a low-interest deal. While it might be helpful to have one convenient repayment to make each month instead of having to organise your finances to pay off multiple sources of debt, you could end up paying more if the interest rate on your debt consolidation loan is higher than the combined interest of each of your repayments.
When should I take out a debt consolidation loan?
When consolidating debt, you should work out how much you will need to borrow before checking the repayment structure. As a general rule, the interest on debt consolidation loans should be lower than what you’re currently paying in interest on your current debts. If you’re expected to pay more in interest, avoid taking out a consolidation loan.
However, if you can find the right deal, you should be able to not only make savings on your existing debt, but also improve your credit rating too. By meeting your monthly debt consolidation loan repayments, you’re demonstrating that you’ve got a handle on your finances – and this could help you to access other lines of credit in the future.