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Credit Repair and Debt Consolidation – How They Work Hand and Hand to Restore Your Credit Score

Taking on the compiled payments and interest rates associated with multiple credit cards can be a daunting task for even the most arithmetically gifted individual.

This is why many people who find themselves encumbered in this situation opt to consolidate all the debts into one easy to manage account as part of an effort to repair one’s credit. If you are unsure of this process or how it will work to repair your credit score, this following article will cover all the details you will need to make an educated decision on the task.

The Non-Credit Advantages of Debt consolidation

Gathering all your lines of credit into an easy to manage account has several important advantages. Before we get into the advantages this can have for improving your credit score, we will take a look at a few other things this form of credit repair can do for you.

Savings and Faster Balance Payments

The most significant of these would be the savings you can make on interest payments. Figures from a couple years back set the average interest cost on credit cards to be about 15%. If you are paying for multiple cards, you could be paying a significant amount of cash unnecessarily. By consolidating all of this into a personal loan or credit card with 0% APR, you will cut back on your monthly expenses dramatically. Then the savings can be placed into your credit repair effort and the balance repaid even faster. The other important advantage is that you will reduce the number of payments down to one. This will make your financial planning all the easier and simplify your life.

Debt Consolidation That Can Help Your Credit Score

In addition to the benefits mentioned above, making the effort towards credit repair through debt consolidation can also increase your credit score. If you choose to make this effort you will likely see a sudden rise in your credit rating in just a few months. This is because the first thing that is affected by your effort is your credit utilization ratio which will drop dramatically. This ratio is the equivalent of your total credit card debt across all your lines of credit in relation to the total amount of credit you have available to you. This figure accounts for almost a third of your total credit score and if you have allowed yours to rise over several credit cards, it is indubitably a high number.

Key Points on Credit Utilization Ratios

It is important to understand that your credit utilization ratio is only comprised of all revolving lines of credit. By consolidating all these into a single installment loan, such as a personal loan, you will see a shift that will have a positive impact on your credits. You will probably see an improvement in your credit ratio as well.

0% APR Option?

If you decide to work with a 0% APR option, you will see the situation a little differently. One reason for this is that when using the 0% APR option your then have more credit available to you, and this itself will improve your utilization ratio. Furthermore, you will have successfully addressed several major balances in one swoop. However, you will probably be facing a fairly steep balance on your new card, this is less than ideal. Your ideal credit card status will be using less than 30% of your credit available at any one time. The takeaway here is that going with the 0%APR plan will probably improve your credit score greatly, but you will enjoy better gains if you go for the personal loan instead.

Final Notes on Considering Debt Consolidation

While there are many advantages to handling excessive financial debt in this way, you will want to do your research first. There are some points to consider before getting started. For example, without a sterling credit score, it may be difficult to find the 0% APR you may need. If you have a good score and receive the 0%APR great. But, if you miss a payment, you could find the entire deal is canceled and your interest rates return with a vengeance.

The Bottom Line

The important thing to understand in the end is that debt consolidation is aimed at treating a much larger condition than overwhelming debt. Spending beyond one’s capacity is a major issue and should be addressed before attempting to repair a credit score. To right this wrong, take the time to look over your credit history and financial plans. If you feel like you are ready to make timely payments and have and commit to the process of credit repair, go ahead and begin the journey of looking for a financial institution that can help you in this regard.