How Does Debt Consolidation Affect Credit Score?

Consolidating your credit cards can help you save money and pay off your creditors faster, but it also has an additional positive effect. Your credit score will increase after starting your debt consolidation program and will end up substantially higher upon its completion.

When you are mired in debt, your credit score suffers the most. Late payments, collection and judgments all bring your score down and affect your ability to secure additional financing. In some cases a poor credit score can even limit your ability to get a good job. Many employers like to see that you are responsible in your personal life and thus will be responsible on the job, poor finance management in their minds directly translates to poor ability to manage work related task. Starting and completing a credit card consolidation program will remove the negative marks on your credit report which in turn will allow your score to gradually improve.

Of course, just like any other repayment program the key is payment consistency. If you miss payments, make late payments or otherwise wise stray from your consolidation plan, your credit score will suffer and in extreme cases, you may even be disqualified from participating in the program further.

Other things to consider on a credit card consolidation program

Credit card consolidation can help get your credit and your financial health back on track, but you should also take steps to avoid falling back into the same traps that led you to consolidation in the first place. Avoid impulse and unwise spending choices, limit your expenditures and try to stick to your budget.

As your credit score improves, you may me tempted to open another line of credit as pre-approval offers start to pour in. Avoid these offers since credit card debt is what you are trying to eliminate. Instead of using credit, use cash. This is a good way to see how much you are spending and limit the amount that you spend.

If you are working with a debt counselor, a consolidation arbitrator or a financial advisor, sit with them to create a budget that reflect your lifestyle, goals and income barriers. Planning the amount you have to pay for regular expenses as well as towards your credit card consolidation plan will help you save money as well as put some away for later use, such as retirement.

When you make your budget, leave a little wiggle room so you can still make smaller unexpected purchases so you don’t feel completely restricted. Also, put aside a certain amount of money every month for a night out or fun time with the family. This will allow you to bring a sense of normalcy back to your lives while you get your finances on track through your debt consolidation program.

Getting into debt is easier than it seems, all it takes are a few unwise purchase choices paired with the inability to repay credit card bills. The next thing you know is about the bill collectors harassing you at home or work at various times of the day. Getting out of debt by consolidating your credit cards is just as easy but simply takes time and self control.