Are you struggling with too many loans and debt? When your credit card burdens your mind, you need to settle things. If you have been troubling yourse
Are you struggling with too many loans and debt? When your credit card burdens your mind, you need to settle things. If you have been troubling yourself with a debt burden, you need to find a way to manage your finances. When you have ongoing credit card debt along with other forms of loan like a personal loan, you need to consolidate it. Debt is a burden that one needs to tackle in a responsible manner. If you have taken too many loans to cover up expenses and emergencies, you need to consolidate it. Debt consolidation is a very crucial way to fix yourself in a positive debt journey. The only way to cope up with several debts and various EMI amounts monthly is debt consolidation. However, debt consolidation can hurt and impact your credit in a negative manner. There are various ways by which it can low down your Experian credit score. While you may feel that debt consolidation is taking you out of the debt trap, it is also hanging you negatively in terms of credit. Figure out the ways that debt consolidation can harm your credit report before you borrow a loan to consolidate your multiple borrowing.
What is debt consolidation?
Debt consolidation is a method used by individuals with too much debt. It can be possible that due to a crisis or any undesirable situation, you end up taking too much debt. Debt consolidation is the way out during that situation to cover up the undesirable situation and avoid the debt trap. Debt consolidation is a method of finishing up all the multiple loans with one single loan. You calculate the entire borrowing amount and then take a loan of that amount to finish off those multiple loans. This way you end up having a single loan that has one single EMI. It is a much more affordable solution other than having too many EMI and various rates of interest. You can easily manage the single personal loan for debt consolidation purposes and finish up the multiple small loans that you have.
How can debt consolidation hurt your credit?
● Hard enquiry harms your credit score: If you take up a personal loan to settle up your multiple loans, your loan provider will run a hard enquiry. Every time you apply for a loan, there is a hard enquiry run on your credit statement. This is terrible when it comes to your credit score. Every time the hard enquiry is run through, you lose out on a lot of points from your credit score. If you think of consolidated debt, you will have to borrow. But if you want to avoid the damage, do not apply for a loan after you have faced rejection. Try and improve on the reason why you have been rejected other than applying and damaging your credit score. Make sure you do not apply multiple times to consolidate your debt.
● New account damages your credit: It is always true that the older the credit age, the better it is for your credit health. If you open a new credit account to settle and debt consolidation, you end up damaging your credit score. What you need to do is, make sure that you are not opening a new account and closing the account that is of long age. An account that has a long history in credit will always give you a good credit report. However, if you decide to get a new credit card to consolidate your debt, this may harm your credit in a bad way. Make sure you take proper steps to consolidate and not the opening of new accounts.
● Closing old credit will be harmful: If you think that you can go for a new credit account to consolidate your debt, you will do wrong. The best way is always to go for the credit account that you already have. If you have a credit account for many years, you should use that account to pay off your bills on time. Credit age is a good sign and you always get a good limit on that. The moment you close your credit accounts, you will end up wasting the credit limit that was available to you. There will be no chances of getting back the loss limit and this also smashes down your score rapidly.
● Being late or missing payment: If you are consolidating your debt with others, that shows that you were not able to pay off your debt. Now after you have taken a new loan, things are more sensitive. In that case, if you miss out or delay payment on the new loan, that will damage your credit report hugely. You need to try out various ways but make sure you handle your payments on time. Be on time when you consolidate your old loan with a new one.
Check credit score online to keep yourself updated. You need to keep your Experian credit score in place so that it is easy for you to borrow. If you want to consolidate your debt, using a personal loan is the best way to stay ahead.