How to consolidate your debt and increase your credit rating


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Now is the right time to consolidate any credit card debt that you have. Experts say that it is essential to evaluate your lifestyle and calculate the costs before finding a strategy that works.

The Federal Reserve reduced its short-term benchmark rate by a quarter-point earlier this week. It was in the range of 1.5% to 1.55%. According to Ted Rossman (an industry analyst at, the quarter-point reduction is only about $ 1 per month for anyone making minimum payments on credit cards.

Instead of cutting back on your monthly payments to each credit card, consolidating all your balances into one payment with lower interest may be a better choice. This will save you money and make your life more simple. You only have one payment to make.

A new Transunion report shows that consolidating debt can help boost credit scores. According to Transunion’s analysis, nearly 70% of those who consolidated their debt saw their credit scores rise by more than 20 percent. The greatest improvements were seen in those with a VantageScore of less than 720. VantageScores can range from 300 to 855.

Consumers with credit card debt are often required to make multiple payments on different cards. Senior vice president Liz Pagel stated that debt consolidation makes it easier to pay bills and leads to some people having higher credit scores. TransUnion’s President and CEO of Consumer Loans.

Consolidating credit card debt can be one of many options. Personal loans and balance transfer credit cards are the most popular options. What is the best way to go? Eric Roberge is a certified financial planner who founded the Boston-based consulting firm Beyond Your Hammock.

Let’s take a closer look at each one.

A personal loan is a good option

A personal loan from your bank is an unsecured loan that can be used to consolidate or pay off large amounts of debt. The strategy is to pay down debt.

TransUnion reports that consumers who take out personal loans repay almost 60% of their credit card debt. The average balance dropped from $ 14,015 down to $ 5,855.

These loans don’t always offer lower interest rates. As with all loans, you must apply and get approved. If you have poor credit, your chances of being approved or denied for a loan are high. According to Credible Loan Market Analysis, those with lower credit scores than 680 will be charged higher interest rates for personal loans than credit cards at 16.97%.

Personal loans have a rate that is dependent on credit. However, it also depends on the term of the loan. Shorter loans usually have lower APRs. Credible believes that if you think it will take you more than three years before you can pay off your debt, then you might be subject to a higher interest rate.

Roberge said that even if you can find a low-interest loan, it is essential to look at all numbers. He explains that loans can have origination fees, leading to higher interest rates than your credit card.

These fees can range from 1% to 88% of the loan amount. For a loan amount of $ 10,000, the fees could be between $ 100 to $ 800. It’s possible to lose any savings you made with a lower interest rate if it’s high.

Balance transfer cards are a good option

You can get a credit card instead of a personal loan that you have to pay off. This allows you to consolidate and transfer balances onto one card. It would be best to look for a card that has no balance transfer fees and 0% for at least one year.

Roberge stated that a credit card offering an introductory 0% APR over a time period (ideally 12-18 months) and no fee for balance transfer is a good option in many cases.

He warns that this strategy has its pitfalls. Roberge said that the most important thing to keep in mind if you choose this route is to make sure you pay every payment on time. You can cancel 0% APR offers if you miss a payment or pay late. Then you will have to pay interest on your total balance. Before signing up for a card, it is essential to read the terms carefully and evaluate your habits.

Roberge says that if you don’t have a guarantee, you will be able to pay the card each month, which could lead to you being even worse off, particularly if the balance transfer card’s APR is higher than the original cards. He says, “Set up automatic payments, set reminders on your calendar – anything you need to ensure you don’t miss any payments.”

You may also be approved for a balance transfer card but not the entire amount of your outstanding debt. This could mean that you will need to withdraw multiple cards, which may be slightly counterproductive to a clear consolidation plan.

The best way to use a balance-transfer card is not to use it for new purchases to pay off your debt. Roberge says to keep your focus on the current balance and not increase the debt.

Make an emergency savings account

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Debt Consolidation