Many borrowers are willing to get out of debt as soon as possible. They search for the best ways to do this as nobody wants to hurt their good credit. However, if you have a large amount of debt, you may consider trying debt consolidation.

Each situation is unique and there is no right answer for every person whether a certain debt consolidation option can affect their credit. Let’s get a closer idea of how debt relief can influence your score and when it makes sense to use this option.

Ways to Use Debt Relief

Debt consolidation option may become a wise decision in case you can’t afford necessary things because you have multiple accounts with credit cards having high-interest balances and it is hard for you to make regular monthly payments. Personal Money Service explains the primary points of debt management and collections system for the customers to make the right decision.

Debt relief may lower these payments and even boost your credit provided that you stick to a particular plan to repay the debt. If you combine multiple loan balances into a single loan, it means you will consolidate your debts. There are several ways to make it.

Personal Loans – Getting approved for a personal loan with a low-interest rate can help you repay other high-interest debts much faster.

Balance Transfer Credit Cards – These special cards provide short time periods when the borrower can transfer the funds to this new card with very low or no interest at all. This option allows saving money on interest and repaying the main debt faster.

Home Equity Loan – Do you want to use your home as collateral? Then home equity loan can provide you with lower interest rates than the above-mentioned lending options. The only thing is that you need to be careful and pay the loan back if you don’t want to lose your home.

How Debt Relief Can Help Your Credit

Payment history and the amount of the credit which you are currently having are the two key factors that influence your score. The credit history and new credits have less influence on your score.

When you decide to use a debt consolidation plan, you will be able to decrease the number of monthly payments. Also, it will be easier to keep track of your regular payments. If you had late or missed payments in the past, this positive payment behavior can lead to your credit score increase. For instance, using a personal loan for debt relief may result in visible improvement of your credit score in just a few months.

Statistics show that using an installment loan as a way of debt consolidation can increase the borrower’s credit by 20 percent in just three months, which is definitely an advantage.

How Debt Relief Can Hurt Your Credit

On the other hand, you won’t always get positive results from opting for debt relief. In some cases, it may even lead to much lower credit. For example, transferring all the balances from your credit cards to one card and using it to its maximum credit limit can drop your score. In case you won’t be able to repay your card balances in full, using the credit card can hurt your score. Ask for professional advice if you aren’t sure if debt consolidation will be worth trying as several mistakes can lead to a lower score.

To sum up, it is significant to bear in mind that every situation is different. Opting for debt consolidation can be beneficial in case it helps you achieve your goals of either securing a lower monthly payment or decreasing the interest rate.