- Financial stability
- After your debt consolidation loan is approved
- Your credit score depends on multiple variables
- Lowering your credit card balances can have a positive impact on your credit score and brings you closer to financial freedom.
- As always, do your research before making any significant financial decision
In today’s economy, 80% of the American population is strapped in debt, and the majority of these people have more than one unpaid loan. Sometimes, these loans can be quite stressful and difficult to pay off. While everyone aspires to be financially stable, financial stability can only be achieved by good saving and spending habits.
Making financial decisions can be daunting, especially if you do not know your options. A debt consolidation loan is a straightforward and affordable way to pay off your loans with the added benefit of improving your credit score.
In a nutshell, debt consolidation is referred to as combining multiple debt balances into one new loan. A debt consolidation loan allows you to pay off all your other loans at the same time, and lowers your credit card balances. Lowering your credit card balances can have a positive impact on your credit score and brings you closer to financial freedom.
Your credit score is determined by your payment history and your credit utilization rate (the percentage of the total credit you are using). As a general rule, you are advised to keep your credit utilization rate below 30%. This might not be realistic for some people due to your budget and the available credit. If this credit utilization is high, it might affect your credit score, so it is wise to pay off your debts as soon as possible.
The most popular option when it comes to paying off your credit card balance is making higher than minimum payments until the debt is paid off. However, you still need to consider the interest you are required to pay, and this can quickly get out of control.
When your credit card balance is too high and you are spending a lot of money on interest, you may find it almost impossible to considerably reduce the credit card balance. In such cases, it would be wise to consider transferring your debt to a personal loan with a lower Annual Percentage Rate (APR).
Applying for a debt consolidation loan may slightly reduce your credit score, but paying off your debt will result in a noticeable boost in your credit score. After your debt consolidation loan is approved, many lenders will directly pay off your creditors. You will then repay the debt consolidation loan in installments, usually with a lower interest.Your credit score depends on multiple variables, but reducing your credit utilization rate can significantly raise your credit score in less than 30 days. When applying for a debt consolidation loan, it is best to look for a lender with lower interest rates so that it can be easy for you to clear your debt and get closer to financial freedom. As always, do your research before making any significant financial decision.