Does My Credit Score effect the Interest Rate on My Debt Consolidation Loan?
Debt consolidation is a great way to take care of your problem loans. If you can’t seem to make your payments every month, and/or you’re starting to collect late payment notices, you need to take steps to pay off your debt and get your payments down to something you can manage. In many cases, debt consolidation is a great option.
If you’re thinking about trying debt consolidation, then you might be deterred because you’ve been turned away for other loans. If you have a bad credit score, then you’re familiar with the fact that you just can’t get the same low interest rates that people with high credit scores can get. A lot of people assume that this is also true for debt consolidation loans; the interest rate they’ll be offered will be too high for them to save any money.
Most of the time, this just isn’t true. That’s because debt consolidation loans work differently than other types of debt. The main difference is that everyone applying for a debt consolidation loan is required to go through debt counseling. This requires the borrower to meet with a financial professional and work out a budget and payment plan for the loan.
Multiple studies have shown that people who go through debt counseling are much more likely to make on time loan payments than people who have not been through this process. Part of the reason is that in order to qualify for a debt consolidation loan, it is necessary for the debt counselor to make sure that a person has room in his or her budget to make the payment. This budget is developed by both the counselor and the borrower, so it takes each person’s unique financial circumstances into account.
For example, if you have recently had your hours cut back at work, making it impossible to pay all of your current debts, your new budget will be based on your new income level. That also means your debt consolidation loan will have a low enough payment that you can actually make progress on paying off your debt. Your credit score won’t be a major factor in getting your new loan.