If you have a lot of debt, especially unsecured credit card debt, it may seem like a good idea to consolidate all of those little loans into one big loan – and indeed, doing so can save you time and money. Be careful, though, because different debt consolidation plans can either help or hurt your credit. Choose a plan that will get you out of debt as quickly and easily as possible while protecting your credit profile as much as possible:

Consolidating debt with a debt consolidation loan

Debt consolidation loans are the most popular way to consolidate and pay off debt. Rolling all of your loans into one larger, consolidated loan (preferably with better terms and interest rate) can actually save you money by reducing what you pay toward those debts.

Be careful, though, because it’s not always easy to find a debt consolidation loan with good terms, especially if your credit history has taken a hit because of recent financial difficulties, and/or because you’re carrying a lot of financial debt.

There are options if you have difficulty getting these loans through traditional lenders, such as peer-to-peer lenders like Prosper.com and LendingClub.com. You can also check with your credit union or bank, or search for an online lender that offers consolidation loans at reasonable terms. Make sure you do your homework before you sign up, though; there are lots of scammers out there, so make sure you double and triple check the organization’s reputation before you take the plunge.

How does this affect your credit?

Using a debt consolidation loan to combine and then pay off your debt can actually help your credit, since taking one out may let you pay off credit cards that are near their credit limits. Used wisely, this is a great way to manage your debt and maintain or even improve your credit rating.

Consolidating debt with a formal debt management plan

The so-called “debt management plan” or DMP is offered through credit counseling agencies; with this type of plan, you sign up as a client with the credit counseling agency, make one payment to that agency, and then the agency makes payments to each of your creditors, usually in exchange for reduced interest and lower payments. Again, make sure the agency you are dealing with is reputable.

How does this affect your credit?

Unfortunately, your credit will take a hit because you must close all of your credit accounts while you’re working with one of these programs. But it’s also true that FICO doesn’t care that your debt is getting paid off with the help of the counseling program, just that it is. What that means is that yes, your credit will probably take a short-term hit simply because you have to close all of your accounts while you’re with the programs; the effect is relatively short-term and will ultimately improve your credit if doing so lets you pay off your debt, though.

Consolidating debt by transferring to a lower rate credit card

You can consolidate credit card debt by transferring it from higher interest credit cards to a lower interest rate credit card; this can indeed help you pay off your debt sooner because your interest rate and monthly payment will be lower. However, be careful to be very disciplined. Don’t simply transfer the debt to the lower interest card, only to have interest rates jump after the introductory period so that you’re back in the same bind as you were before the transfer. Pay off the debt before the interest rates jump.

How does this affect your credit?

In general, your credit scores will drop when you open up a new credit card account and use the available balance on a credit card to consolidate debt. However, it’s a relatively short-term drop and probably worth it if you’re disciplined enough to pay off that debt before your interest rate takes a jump. It’s worth it to take a small hit if doing the transfer means that you can pay your debt off and save money at the same time. In the long run, you’ll actually improve your credit scores over time if you do so.

The author who contributed this article is Chase Sagum, Financial and Business blogger. Check out more of his content at www.lexingtonlaw.com.

Share to Explore !!

Facebook

Digg

Pinterest

Twitter

Reddit

Linkedin

StumbleUpon

Tumblr

Print

email

Yummly

Buffer

Whether you are just out of college trying to buy your first home or you are refinancing after your children have grown and moved out, you should have a copy of your credit score. Knowing your score puts you ahead of the creditors. Knowing that your report is free of errors and that anything negative has been disputed, gives you peace of mind.

When shopping for a credit report it can be overwhelming. Commercials will advertise free reports. However, once you log on to obtain your report there is a catch. Do not let the business of credit reports get you. You can get a free credit report. In fact, you are entitled to one.

Fair Credit Reporting Act

The Federal Trade Commission has a mandate known as the Free Credit Reporting Act. In this act you are entitled to a free credit report once a year from the big three credit companies: Equifax, Experian and TransUnion. The FCRA mentions that you should only request your credit report through annualcreditreport.com.

Common Requested Information

When filing for a free credit report one worry can be that you will have to give out personal information. With all the stories about identity theft this is a tough issue. Under the FCRA you will have to give your name, address, social security number and date of birth. You do not have to give a credit card number. If a site asks you for a credit card number, be aware that this is a red flag for a scam.

Many sites will say that they are issuing a free credit report when you sign up for a free trial service. However, they will ask for your credit card number at the time you sign up. If you opt for this service make sure that you read the fine print and cancel the trial before the deadline or you may get charged.

Another Option for a Free Report

Under the FCRA if you are denied a loan or application of some kind, you are entitled to ask for a copy of your report within 60 days of said action. You should receive an Adverse Action Notice which will state that you were denied credit, the reasons why and that you are entitled to a free credit report.

If you were approved for a loan, but your credit score affected the rate at which your loan was given in a negative way, as compared to other consumers, you will receive a Risk-Based Pricing Notice. If you do receive this you will find information about your score and what factors contributed to the negative risk that is associated with you as a client. Additionally, you will receive information on how to obtain a free credit report.

Some companies will send out a Credit Disclosure Notice, which will give you information about your credit score and how it was used in the approval process of your credit application.

Knowing Credit Score Factors

Your credit may change every day. Some of the items that affect your credit score are:

• How often you move
• How often you r payments are on time or late
• How often creditors or banks pull your credit report
• Whether you have disputed items

With these factors in mind it is important to know your score when you are looking for a loan or applying for a job. CreditKarma.com is a website that provides your score free. This site bases the score off of your TransUnion credit report. They will not charge for this service and you can keep an eye on your score.

What About the FICO Score?

There is one other score that may be looked at when you apply for credit or a mortgage, which is the FICO score. This score was once the do all to end all score. This is no longer the case. The FICO score is actually one of many scores that a company may or may not look at. It appears as if companies are now looking at your VantageScore, your credit report and other factors they determine in house.

When struggling with credit issues, know that you are entitled to a free credit report.

The author who contributed this article is Chase Sagum, Financial and Business blogger. Check out more of his content at www.lexingtonlaw.com.

Share to Explore !!

Facebook

Digg

Pinterest

Twitter

Reddit

Linkedin

StumbleUpon

Tumblr

Print

email

Yummly

Buffer