Debt destroys a lot of things in your life and some of you think that you need to solve one problem at a time. While this is true for the sake of concentration, there are problems that you can solve simultaneously.
We are talking about your debt amount and your damaged credit score. One of the things that you ruin when you accumulated all that debt is your credit report – especially when you start defaulting on your payments. Your payment history and your debt amount comprise 35% and 30% (respectively) of your score. That means wading in debt already pushed your score lower.
Some people think that to work on one will damage the other. There are debt relief programs like bankruptcy that will solve your debts but will damage their credit score. However, you need to know that it is not always the case. The good news is, you can work on improving both if you choose the right debt solution.
Debt consolidation can do that for you. It allows you to create a structured payment that will help with your debt without harming your credit score.
Debt consolidation, both debt management and debt consolidation loan, makes debt payments easier because it allows you to lower your monthly contributions. The structures payment plan is usually made longer than before so the monthly requirement that will be adapted by the consumer can be lowered. This frees up their funds so they can put more into their savings or loosen the restriction in their budget.
The great thing about this is that your credit score will not suffer because there will be no debt reduction. The lower payment should make things easier for the consumer thus making it unlikely for them to be late on payments. In debt management, the presence of a debt counselor will help them keep track of payments for all their debts. They only have to think about the one payment that will be sent to the counselor on a monthly basis. The distribution to the different creditors will be part of the service that debt counselors will provide. While in this program, the consumer will not be allowed to use their credit cards so the chances of them adding more into the debt is unlikely to happen.
In debt consolidation loan on the other hand, your credit score will feel the program – but only in the beginning. The idea behind this program is you will get a loan that is significant enough to pay off your other debts. The momentary increase in your debt may be reflected on your credit report. But as soon as you use that loan to payoff your other debts, things should be better. As you discipline yourself to pay off what you owe, your credit score will rise again.
Of course, the debt relief program will have to be practiced with discipline and commitment. If you really want to solve both debt and credit score, you have to learn the proper financial management skills as you follow your debt relief program to the letter.