Does Debt Consolidation Hurt Your Credit

Debt traps often shackle themselves to achieving financial independence. Therefore, many people are trying to avoid debt. But in reality, it is quite difficult to do. In addition to not achieving financial independence, the number of needs often encourages someone to go into debt. Especially those who apply a lifestyle of prestige and luxury but are not supported by adequate financial capabilities must be easily trapped in the endless vortex of debt. And when you are stuck in debt and have joined a debt consolidation program, there is an interesting question, namely does debt consolidation hurt your credit?

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Debt consolidation is a type of loan that can help you pay off other debts. In addition, this one solution can also free you from complicated and convoluted processes, especially if you have debts from more than 1 creditor.

Understanding Debt Consolidation

Debt consolidation is an effort to combine several unsecured loans into one loan with a larger value or ceiling. Debt consolidation can also be understood as a form of changing the financial structure of debt into one loan to pay off several other loans.

The merger of debt into one larger loan is generally accompanied by payment terms that are more 'profitable' for the debtor, namely a lower interest rate or lower monthly installment payments, or even both.

Debt consolidation is a form of simplification of monthly installment payments because the debtor will only pay one installment after other debts are repaid with this debt consolidation loan.

Things to Consider in Debt Consolidation

Does debt consolidation provide a solution to get out of debt bondage? Of course, the answer is very relative, because it depends on the situation and conditions experienced by each debtor. However, before being tempted to consolidate debt, it's good to pay attention to the following.

  • Debt consolidation is a loan that is refinanced with a longer term or repayment period.
  • Extended payment terms signify that the term of the debt will become longer.
  • The offer of a lower interest rate is not necessarily a guarantee of lower or lighter debt.
  • Debt consolidation does not mean debt relief, because the debtor still must pay installments on new debts for a specified period.
  • Debt consolidation is different from debt settlement, both of which are not necessarily the best solution for debtors to get out of the bondage of their debts.

For those of you who are trapped in a lot of debt and have difficulty paying and prioritizing installment payments, debt consolidation can be the only solution. You may think why the debt period becomes longer, as long as the installments that must be paid every month are lower so that they are affordable and not burdensome.

When you are facing a difficult financial situation, you may not think long, especially to the point of having to compare the amount of loan accumulation that is currently a burden with the loan accumulation after consolidation.

Benefits of Debt Consolidation

For some or even most people who are in debt, debt consolidation provides the following benefits.

  1. Loan interest rates become lighter.
  2. The amount of installments that must be paid every month is lower so that it does not burden expenses too much.
  3. Financial management becomes better because loan installment payments are no longer branched but only on one loan.

Does A Debt Consolidation Hurt Your Credit

Behind the benefits that may be felt, there is also the risk of loss that must be considered and considered when consolidating debt.

Several losses have the potential to arise in consolidating debt, including:

  • Debt consolidation does not guarantee low-interest rates.

It should be understood that many factors influence the decision in determining the interest rate on debt consolidation loans. In addition to the policy of the lender or lender, it is also influenced by the loan's 'track record' or repayment behavior and your past credit score. Although eligible for a low-interest loan, there is also no guarantee that the rates or fees charged to you will remain low.

  • Debt consolidation will make the debt period longer.

The debt solution is actually to get out of debt bondage faster. However, by consolidating debt, you will extend the term of the debt so that the installment payment period until repayment becomes longer. That is, you can't get out of debt quickly.

  • Debt consolidation increases loan accumulation.

An increase in loan accumulation means that your debt will be greater than your previous accumulated debt. Indeed, the monthly installments you pay can be lower, but remember that to get low installments the loan period becomes longer. That is, the total you have to pay is greater than your previous total debt. With a longer loan period, the interest costs you have to pay will be even greater.

  • Debt consolidation will not write off previous debts.

Debt consolidation is just restructuring your debt, not writing off existing debt. With new debt through consolidation, you can indeed pay off previous debts. However, in the future, you still have debt dependents so you must continue to make installment payments every month until the specified period.

Debt consolidation can be a solution to your debt, or not. Hopefully this information about "Does debt consolidation hurt your credit?" is useful for you.


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