Do Debt Consolidation Loans Affect Consumers’ Credit Scores?

Readers who have fallen into debt and need some help getting their finances in order should know that they’re not alone. A lot of consumers wind up in debt in today’s economy, which is why credit counselors exist and why many financial institutions offer debt consolidation loans.

Want to find out how these specialized services affect credit scores and credit reports? Read on to get started learning about the short and long-term effects of several strategies for debt consolidation.

The DIY Approach

Some lenders may be willing to work with consumers who have fallen behind on their repayments, though not all of them will actually offer better terms. It typically takes at least four to five months before a relief program that has been implemented through a creditor will take effect and, during this time, consumers’ credit reports will show late payments or missed payments.

Hiring Credit Counselors

Credit counselors can help their clients in several important ways. The financial experts can negotiate with debtors on the borrowers’ behalf to ensure their clients are getting the best terms, help the clients find debt consolidation loans, and offer valuable advice about how to avoid future financial woes. It’s important to note that even with the help of a creditor, taking out a debt consolidation loan will usually lower readers’ credit scores on a temporary basis, though the scores will increase as they make payments.

Taking Out a Consolidation Loan

Some companies offer direct debt consolidation loans, but even with the help of these financial experts, consumers cannot improve their credit scores overnight. It takes time to negotiate terms with creditors and recover from missed or late payments in the past. The right debt consolidation company will offer a loan that has a lower interest rate than the consumers’ original loans, though, which can help them save some money and make it easier to ensure they’ll get back on track successfully.

The Take-Away

While debt consolidation does have a temporary negative impact on credit score no matter how consumers go about it, if they make their payments on time, this damage will only be temporary. Readers can get more info here before choosing a consolidation loan or credit counselor to make sure they’re on the right track.