Does consolidating debt affect credit score
The amount of equity you have in your home will in part dictate how much you can borrow, but qualifying criteria varies from lender to lender.The more equity you have, the better terms you’ll get.“Over time, your credit score could be helped because you’re eliminating a lot of debt that you’ve had trouble paying off, so it’s freeing up available credit and indicating that you’re becoming less and less burdened by the debt that you owe,” says Mc Clary.While your credit score may take a small hit during the loan application process, reducing your debt burden and lowering your credit utilization ratio can do wonders for your score in the long term — especially if you’re able to accelerate your progress by paying more than the minimum payment whenever possible. Here are four financing options to make crossing the debt-free finish line a little easier.A balance transfer lets you take all your credit card balances and lump them into one new credit card with either a lower ongoing annual percentage rate (APR) or a lower introductory APR for a specific period.This can ultimately help you get out of debt faster while paying less in the long run.
Similar to a personal loan, a home equity loan translates to a chunk of money you can use to pay all your debts and with the proceeds of a new, fixed-rate loan.
If your total debt payments equal more than 45 percent of your total income, lenders may be hesitant to give you a HEL.
That said, home equity loans can be a fantastic consolidation tool.
The higher the interest rates are on your existing debt, the more you’re likely to save with a balance transfer, but there’s a catch: When the promotional interest rate expires, you’ll probably get slammed with a high ongoing APR.
To get the most out of a balance transfer, pay off your balance before the promotional period ends. Credit card companies also usually charge one-time transfer fee of up to 5 percent of the balance, so be sure to read the fine print, do the math and have a payoff plan in place before pulling the trigger.These types of loans come with fixed rates and fixed payments, along with a clear payback timeline.