Can Debt Consolidation reduce My Principal?
If you’re thinking about trying debt consolidation, then you need to know exactly what these loans can and can’t do. While they are a good way to lower your monthly payment and get your credit rating back on track, they may or may not be able to reduce the principal that you owe.Reducing the principal balance on a loan means that the bank who loaned you the money is losing a part of their investment. This fact alone means that most banks will refuse to even consider a principal reduction. In the rare cases that they will consider it, it’s because they believe that without it, you will stop making payments altogether. Since that poses a greater loss of profit, this is the only set of circumstances in which they are willing to negotiate. This means, of course, that a notation will be made on your credit report. Since banks are very interested in avoiding customers who cannot pay their bills, these notation tend to ruin a credit score for several years.In rare cases, however, a debt counselor will suggest that a client try to negotiate with a bank or creditor with their assistance. This occurs in cases when the debt counselor believes that there is no way to pay off the existing debts in a reasonable amount of time. Fortunately, many debt counselors have good relationships with multiple banks, and they are often able to negotiate a reduction in cases when their clients have virtually no other option. This will usually lead to a reduction of the client’s credit score. A better option for most clients is to pay off the existing debt and replace it with a loan that has better terms. In many cases, it’s possible to reduce an interest rate by half or more, and also stretch out payments over a longer period of time. This usually means that a client’s monthly debt payments are cut in half. Furthermore, the fact that the loan is fixed means that every payment contributes something towards paying off the principal of the loan. You’ll know that your money is making a difference in your debt level, and you’ll know when your loan will be paid off.