Improving Credit Rating With Debt Consolidation Loan

Improving Credit Rating With Debt Consolidation Loan 

If you are experiencing debt problems, and find that your credit rating is suffering, this may affect your ability to borrow money in the long term, and it is important to improve the rating as you conquer your debt.

Debt consolidation loans are a common solution to tackling out of control debt. If you find the right rates, a loan of this type can offer lower monthly repayments, and sometimes lower interest rates too. Using new credit, all of your existing debt is consolidated into one repayment to a single lender.

A debt consolidation loan is not always the best solution, but not many people realize that when the time is right it is even possible to improve your credit rating with consolidation.

All Depends What You Do After Consolidation

Debt consolidation loans do not, in and of themselves, affect credit rating. In some cases they may even cause a small dip in the short term, as you will be borrowing more money. If used wisely however, and paid off with no problems, debt consolidation helps you to avoid the bad credit you are currently accumulating, and gain stronger credit through the action of repayment.

It all depends what you do after consolidation, and whether you manage your payments and repay your debt.

Stop Missed & Late Payments 

One of the primary reasons why people tend to seek a debt consolidation loan, is due to the struggles of existing debts which come from many lenders. In many cases payments are being missed, late payments made, and charges accumulating; all of which negatively effect your credit rating.

Debt consolidation loans can make repayments more manageable, often reducing the amount you need to pay each month. Payments can be scheduled in a way that suits you better than before, helping you to regain control of your finances. Getting back on top of repayments, and reducing fees and charges, will help to stop the negative impact of your debt on your credit rating.

Positive Credit Impact With Consolidation 

With your finances under control, and your debt well managed under the consolidation loan, you should be able to begin to actually improve your credit rating. If you are able to make repayments to the schedule that you agree upon and pay off the loan, then you will show responsibility as a borrower. This is a huge factor in your credit rating.

If you manage to pay off the debt consolidation loan, and gain no new debt, then your credit rating will be very strong. Less debt equals stringer credit, so repayment is always the goal. Use a consolidation loan to move forward and make repayments, not just to move debt around, and your credit rating will be improved.

Is A Debt Agreement Better Than Bankruptcy?

Is A Debt Agreement Better Than Bankruptcy?

When debt becomes severe a serious debt solution may be the only way out. Many people believe that bankruptcy is the only option in such cases, but there are other alternatives that should be considered.

Debt agreements are considered acts of bankruptcy under the Bankruptcy Act 1966, but do not have as far reaching implications as bankruptcy itself, which in most cases has the most negative impact on credit rating.

Here is a quick overview of the consequences of both a debt agreement and bankruptcy:

Bankruptcy

Remains on credit file for a seven years. Recorded on National Personal Insolvency Index.

In some cases, may not be required to pay back any of debts to creditors. You do not need to seek approval from creditors to file for bankruptcy.

May lose some of your assets, and experience difficulty traveling. Obligatory yearly assessments of income.

No requirements or limitations on income, debt, or assets, making bankruptcy a more readily available option in some cases.

Debt Agreement

Remains on credit file for a minimum of 5 years, or more if the agreement last longer. Recorded on the National Personal Insolvency Index.

Provides financial relief in the form of frozen interest rates and affordable repayments. Legal action ceases on unsecured debts. You still pay back some of what you owe.

You keep all of your assets, and do not experience some of the other negatives of bankruptcy, such as travel restrictions and yearly assessments of income.

Debt agreements have restrictions such as income and minimum and maximum debt amounts, and so are not always an available option. In the case of ineligibility bankruptcy may be the viable option.

Which Is The Better Option?

It all depends on your specific situation, which is why debt consultations are a wise idea if you are experiencing debt problems. Generally speaking a debt agreement is preferable, if the option is open to you and you meet the requirements. You are still required to pay back some of the debt you owe, but the consequences are less extensive than bankruptcy.