Reports indicate that the average adult American carries a total debt amount of around $90,000. For those who make six digits, this is but a meager amount. However, for the ordinary American household with a combined income of less than $50,000 annually, paying off this amount might take some time. What’s the best way to clear debt and boost credit standing?
Debtors having trouble making monthly payments to different creditors via multiple accounts can consider debt consolidation. This is a debt refinancing method where you get a lender to pay off all your existing debt, then consolidate the total debt amount under one repayment plan. The idea is to find a lender that offers better, more cost-efficient refinancing terms.
The first thing you need to do is check your qualifications. Bear in mind that you’ll have to take out a new loan to consolidate your debt, so unless you have the required income and credit standing, this strategy might not work for you.
Next, list your total debt amount. Add all the secured and unsecured debt you’d want to transfer under one loan account. Review the interest rates and payment terms as well.
Afterward, compare the different debt consolidation loans on the market. Your goal should be to find a loan that offers lower interest rates, flexible term lengths, and overall better repayment terms.
Unfortunately, debt consolidation won’t automatically increase your credit score. In fact, taking out a new loan might increase your credit utilization ratio (CUR) and cause your score to drop a bit. However, you should start seeing some improvement with your credit standing once you start paying off your total debt amount.
Should you consolidate your debt under one lender? Overall, debt consolidation is a great way to manage your debt if you:
However, if your primary goal is to reduce your total debt amount, you might want to consider other options, such as debt settlement. Don’t limit yourself to just one strategy. Remember: there is no one-size-fits-all debt management solution.
Not sure whether debt consolidation is the best way to reduce your debt? AnyCredit has multiple resources on the best debt management strategies and tactics for debtors to follow. Visit the rest of the AnyCredit website today!