The Debt Free Guy

As more and more people are beginning to suffer from debt, there is a quickly increasing number of people who are seeking a solution to the rising cost of loans and possible credit issues. One of the most popular solutions to getting out of debt today is a debt consolidation loan. Debt consolidation loans are given sole;y to customers who are in need of help through a consolidation agency. As a matter of fact, the power of these types of loans to fight debt and help consumers attain a more comfortable existance is unmatched. The way a debt consolidation loan works is that it absorbs all of a customers debts and replaces them with one active loan, resulting in lower interest as well as payments. On the other hand, there is concern that debt consolidation loans may have a negative impact on your credit score. With that being said, the only question is: Are these types of loans worth it?

Debt Consolidation Loans Worsen Your Credit Score

Debt consolidation loans are virtually no different from other types of loans when it comes to the application and underwriting process. When filing for a debt consolidation loan your credit score will be pulled by the debt settlement agency causing an increase in the number of credit inquiries. Credit inquiries generally are responsible for about ten percent of you credit score, and applying for a loan will result in a temporary drop in your score. Credit inquires will stay on your credit report for up to two years, and will have the greatest effect within the first six months.

Upon being granted a debt consolidation loan, a new account will show up on the borrowers record. This will also cause another drop in your score. Because the age of the credit account affects the credit score, a new account would decrease the average age of all of the loans on your account. This will cause your credit score to drop even lower. However, this does not happen with all new credit accounts, whether it be a credit card, about loan or other type of loan. Consolidating debts through the help of a debt consolidation loan does have a negative impact on your credit rating. However, the ramifications of receiving a loan towards your debt is temporary and may not last longer than a year.

Debt Consolidation Loans Are Beneficial In The Long Run

There is one more factor that will effect the credit score of a borrower receiving a debt consolidation loan. Credit accounts such as past loans and credit cards account for nearly a third of your report. As they are absorbed by the debt consolidation company, credit accounts are updated and your score will rise as a result. It is because of this reason that you should not worry about the temporary drop in your credit score, after all; how much worse could it be? Besides possessing positive long term affects on the credit situation of a borrower, there may be other advantages as well. As your monthly payments are lowered the borrowing cost will be lowered, allowing for easy to understand debt management.

Debt consolidation loans are easily found online. There are many companies offering such services that are both reputable and trustworthy. Debt consolidation agencies are able to custom fit loans based on your credit history and the amount of debt that you are currently living with.