Do You Know What You Should Know about Debt Consolidation? (cont.)
Contributed by Stephanie Litaker
Have you ever considered a debt consolidation loan? This is a type of loan for people with credit problems, where you work with a lender (and if you are approved) you receive the money to pay the creditors, and then make one monthly payment to the bank or lender. With any luck, the interest rate you pay on your debt consolidation loan will be lower than what you're paying on the credit cards, so you will save money.
But, again, this will depend on your current financial situation, and your credit history. Even though interest rates are based on more than just your credit score, it will play a role in determining the interest rate you pay. If you are considered a high-risk borrower, you can expect to pay a higher interest rate.
If I choose to work with a debt consolidation company, will this negatively impact my credit score?
No. In reality, working with a debt consolidation service will actually help you rebuild your credit and improve your credit score. When you work with a debt consolidation service, the credit counselors work with your creditors and will often negotiate a lower interest rate (saving you money) and determining a repayment schedule that fits your budget. When you work with a debt consolidation service, you may pay a small application fee (less than $50) as well as a small monthly service fee (usually less than $5), but this will be money well-spent.
