Undertaking a debt consolidation program will definitely help you get rid of your multiple debts. Debt consolidation neither increases your debt, nor does it remove them. It just combines all of your outstanding dues into a single monthly payment, so that you can avoid handling multiple bills. Over a considerable period of time, all your creditors will be paid off, and you can heave a sigh of relief.
You should keep in mind that enrolling under any form of debt consolidation doesn’t immediately eliminate all of your debts. It only makes your accounts more manageable , helps you in improving your credit score & increases your credit repair possibilities indirectly.
Credit scores are calculated to predict how likely it is, that you can clear off your debts. It helps your lenders to decide whether you are credit worthy, and will be able to continue with the monthly payments. The FICO score which is the most popular and trusted form of credit rating, ranges from 300- 850. The higher you rate on the scale, the more are your chances to obtain a new loan and lower your interest rates on that. So as a consumer, you need to take care of your credit score as it will influence your financial condition.
Paying off your debts through debt consolidation will reveal your willingness to repay your financial dues. It will show your lenders that you are responsible enough to take the matter into serious consideration, and that you are taking steps to improve your financial health. Thus, it is most likely to have an impact on your credit score, which in its turn will convince your future creditors to approve your loan requests.
A debt consolidation program cannot instantly improve your credit score. However, it works in the following way, to improve your ratings:
A debt consolidation makes your payment more affordable.
Your debts are eliminated after completing the consolidation program successfully.
The account status will show as “paid in full”, after you have cleared all your dues.
You not only pay the consolidated debts, but also clear your other dues like utility bills, medical bills, etc.
You try to keep your credit utilization ratio within or below 30%, as it has a major influence on your credit score.
You add positive information on your credit report at various times
Gradually, your credit ratings improve.
However you will have to be consistent while paying away your dues through debt consolidation. You will have to resist the temptation of incurring more debts, just because your previous ones are on the verge of being cleared or since you’ll be having increased credit availability. Before opting for a debt consolidation, you should also be sure about your own financial capability. It will serve you no good, if you default on the monthly payments, even for your consolidation program.