Looking for ways to consolidate your debt without hurting your credit? You’ll get the information you need here.
To most people, there’s no load heavier than debt. It is like carrying a backpack filled with rocks, which slows you down and makes every step a burden. Just like dropping the backpack can make you feel lighter and free, finding a way to eliminate your debt can make you financially stable.
Debt consolidation is the perfect solution to eliminate your debt and relieve the burden weighing you down. It helps simplify your finances, reduce interest rates, and save money in the long run. However, debt consolidation can negatively impact your credit score if done the wrong way.
Hence, this article will discuss eight critical ways to consolidate debt without hurting your credit.
8 Ways to Consolidate Your Debt without Hurting Your Credit
Table of Contents
1. Ask for Help from Family and Friends
If you have good relationships with family and friends who can help you repay your debt, then it might be your best option. Loans from family and friends often come with no minimum eligibility requirements or terms that might put more pressure on your credit score.
However, it’s best to outline the repayment plans to ensure that getting a loan from your family and friends doesn’t negatively impact your relationship with them.
2. Transfer Balances to a Low-Interest Credit Card
You can save money on interest and also pay off your debt faster by transferring your debt from a high-interest credit card to a low-interest one. How does this work? With your debt transferred to a lower-interest credit card, you’ll end up with lower repayment amounts monthly, which helps you pay off debts faster and ultimately increases your credit score.
However, you must research the balance transfer fee, the interest rate on transferred balances, the card promotional period, and annual fees to ensure you’re better off in the long run.
3. Take Out a Personal Loan
Taking personal loans is also one of the key ways to consolidate your debt without hurting your credit score. If you can get a loan with a lower interest rate than what you’re currently paying and a repayment term that works for you, you will boost your credit score with this credit settlement strategy.
This is because, with this plan, you can make single monthly payments on your loan instead of multiple credit card payments. With single monthly payments, it becomes easier to work your loan repayments into your budget and ensure they’re done on time to avoid hurting your credit.
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4. Use a Home Equity Loan or Line of Credit
If you own a home, consider using a home equity loan or line of credit to consolidate your debt. In fact, your home equity is an invaluable asset that can help you easily consolidate your debt, as it makes it easier for you to access loans at insanely low rates.
However, the disadvantage of using your home equity to consolidate your debt is that you risk losing your home. Multiple defaults from you could see your creditor start a foreclosure process on your property. Even worse, defaults can further negatively impact your credit score, preventing you from accessing credit in the future.
5. Consider a Debt Management Plan
In the event your credit is already badly hurt and you do not want further damage to it, consider adopting a debt management plan. This plan involves working with a credit counseling agency to create a budget and payment plan for your debt.
The agency negotiates with creditors to lower your interest rates and monthly payments. They can consolidate your debts into one monthly payment and help you pay them off as scheduled. Using a credit counseling agency ultimately increases your credit score as your debts are promptly paid, and your creditors might agree to an extended repayment plan.
6. Negotiate With Your Creditors
If you are struggling to pay your debt and can’t afford to work with a credit counseling agency, negotiating with your creditors won’t be a bad idea. This way, you can get them to lower their interest rates and extend the repayment term.
Lower interest rates and an extended repayment term enable you to make faster loan payments, thereby improving your credit score in the long term.
7. Avoid Hard Inquiries on Your Credit Report
The hard inquiries from your potential creditors on your credit report affect your credit the most. These are the checks they run to ensure you have the creditworthiness to receive credit from them.
However, many lenders are willing to have you look at their loan offers before they run a hard inquiry on your credit. This way, you only get hard inquiries on loans you’re willing to take, not the ones you won’t take due to their poor offer.
Therefore, when shopping around for credit and comparing interest rates among lenders, it’s best to work with those who won’t run a hard inquiry that will eventually hurt your credit score.
8. Get a Debt Consolidation Loan
Of course, getting a debt consolidation loan is one of the most important ways to consolidate debt without hurting your credit. A debt consolidation loan is a personal loan specifically designed to consolidate multiple debts into one payment.
One of the perks of getting a debt consolidation loan is that it comes with a lower interest rate than you’re already paying and a longer repayment term. This makes it easier to consolidate your debt without hurting your credit score.
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Take Informed Decisions to Consolidate Your Debt without Hurting Your Credit
While you can consolidate debt in many ways, only a few will not impact your credit score. Therefore, before adopting every piece of debt consolidation advice you see, do your due diligence by determining its impact on your credit. Adopting the tips in this article guarantees you practical, simple debt consolidation decisions you can take that will improve your credit score in the long run.