7 Ways To Consolidate Debt And Improve Credit Score
Paying off loans is a tedious process and can be challenging to keep track of. It can help to move all the payments you need to make to one convenient place. That is where debt consolidation comes in. It is about merging credit and loan balances into one large loan. Not only does it help you lower the interest you owe but helps you save money on making regular payments. Once you make enough payments on time, you can even improve your credit score.
A credit score is an essential indicator that informs all loaning and crediting bodies how you handle money. A high credit score means you’re good at making repayments and don’t overspend. So, ensuring you keep a high credit score is pivotal.
Here are some ways you can consolidate debt, improve your credit score and supercharge your finances:
1. Get a Debt Consolidation Loan
A debt consolidation loan is a personal loan that you take to pay off your consolidating debt. You get these loans as secured or unsecured personal loans. While secure loans are easier to get, you often need to put in your car, savings, or even your house as collateral. This may not be a good idea if you’re already in financial straits.
On the other hand, unsecured loans rest on your credit score. While qualifying for one is more challenging, you save yourself from setting up collateral. Fortunately for you, there are services for securing the best unsecured debt consolidation loans online that allow you to choose your loan options flexibly. Once you create an account, you can pick the amount and payment option suitable for you and get funds right away. These services give you the margin to pay back with no early repayment penalties and options to pay according to your income bracket.
2. Use a Debt Management Program
Debt management programs help you create a monthly payment program that reduces interest rates on credit cards and allows you to pay off debt quickly. After analyzing your financial status, most credit counseling agencies can help you make a proper debt management plan.
Since interest plays a role in debt, one of the advantages of opting for a debt management program is a massive reduction in your interest rate, keeping it below 8%. Since these programs are not loans, you can withdraw from them at any time. You get counseling, educational resources, and a proper plan for a minimal fee. Once the payment rolls in, your credit score starts to improve.
3. Go For Credit Card Balance Transfers
If you have a good credit score but you’re struggling to pay the debt, you can use your score to your advantage. A form of consolidation is transferring multiple credit card balances to one card with no interest rate. Your credit card company will provide you with the option to transfer the balance with a payment period of no interest. You get substantial time to pay off the principal amount without worrying about accumulating more. The only catch is you need to make all the payments on time.
4. Consider Peer To Peer Loans
Peer-to-peer loans are personal loans that allow you to get loans with no middlemen such as banks involved. You directly get funds from the borrower, whom you can easily find online and send in an application. The borrower will assign a risk level to your application and allow investors to see your financial profile.
Generally, it’s easier to get investors when you have a medium to low-risk profile. Once the borrower arranges funds for you, they get sent your way online. The added competition between borrowers allows you to choose with whom you want to work at a lower interest rate.
5. Be Strategic About Paying Credit Card Bills
It’s a good idea to utilize your credit cards properly to improve your credit score. Credit cards come with a limit, and no matter how high you’ve set yours, use only 25% of it. Going even lower will only boost your credit score faster if you can go even lower.
When you use your card, you accumulate a small bill with minimal interest that you can pay off right away. This means that when credit bureaus evaluate your financial habits based on your credit balance, you get a high score. The goal is to always keep your balance low and reap the benefits of a high credit score.
5. Review All Credit Report Errors
Credit report errors can decrease your score, which is why you need to review the report once you get it. Most credit bureaus provide you with a free transcript that you can study, picking on where you are marked wrong. If you’ve made a payment on time but don’t see it reflected in your records, dispute the error.
Other errors include using outdated information on your history that is not usable or mixing someone’s credit activity with yours. Don’t let these errors slide since they can negatively impact your credit score. Instead, take the time to file a report and add it to your credit score. The earlier you file, the better your chances of getting reviewed and approved, leading to a fixed overall balance.
6. Look Into Authorized Usership
You have the option of becoming an authorized user for credit cards that your friends and family have. This can give you access to positive payment history and a high credit score. You don’t even have to use their card or their bank account number – you simply share their payment history.
If you’re looking for a way to fix your credit score and have a thin credit file that needs minimal fixing, you may have found your saving grace. But if you’re under staggering loans, you shouldn’t entertain this idea and seek more concrete solutions.
Final Thoughts
Paying back your loans can be a debilitating process. Debts can get messy with time. The high-interest rates and lack of time put you in a difficult position. Still, investigate consolidating debt and finding ways to improve your credit score to put yourself in the best possible situation.
Therefore, options like consolidation loans, management programs, balance transfer, and personal loans can help you bridge the gap between payments. Improving your credit score can get tricky, but all it takes is an effort on your part to keep a low balance and a consistent payment history. Make sure you take small but concrete steps towards financial freedom, and you’ll be there before you know it.
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