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Debt Consolidation and Your Credit Interest Staff - Mortgage Lenders Plus.com

If you’ve chosen to deal with the bills that have piled up through consolidating, there is only one method that intertwines debt consolidation and your credit. That is through using the “debt transfer” method offered by too many late night TV advertisers who are trying to sell credit cards. The concept is transferring your existing, high interest credit card debt to a “zero interest” credit card available if you ACT NOW.

The problem is that the zero interest rate will be in double digits within six months. Unless you can pay off your existing debt in six months, you’ll be looking to refinance into another, similar credit card scam. This constant opening and closing of accounts will eventually have a negative impact on your credit score.

Other than that, the issue of debt consolidation and your credit really has to do with how much debt consolidation will cost you, based on your credit score. The lower your credit rating, the higher the interest will be on your debt consolidation loan. If you are fortunate enough to have the option of a home equity loan, your interest rate will be two to four percentage points higher than what is available for a primary mortgage, fixed rate, for thirty years. Home equity loans are considered second mortgages – this particular interest range is for a loan in the $30,000 range.

A home equity line of credit (HELOC) is also an option for the homeowner. This choice will allow you to withdraw only what you need from the credit account in order to pay down your high interest credit. A HELOC will have an interest rate somewhat lower than a home equity loan, but it is an adjustable interest rate that is tied to the prime rate. If you transfer your accumulated debt to a HELOC and the prime rate starts to climb, so will your payments.

A non-secured consolidation loan will also be impacted by your credit score, although no matter how good your credit is the interest rate is going to be in the teens. The long term fix for both debt consolidation and your credit is to alter your spending habits. Borrowing money to pay off debts has been likened to trying to get out of a hole by digging with a shovel. Retiring debt often requires a Spartan budget which in turn calls for a change in lifestyle. It also takes a while – longer than any of us would like. If you manage your debt consolidation effort over the long haul, however, you’ll come out of it with a significantly improved credit rating.