Sabers Capital guides consumers on the pros and cons of debt consolidation
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The concept may seem complicated, and rightly so. Being aware of financial concepts and financial logo is not everyone’s cup of tea. So, let’s put it in simple, easy-to-understand words. Debt consolidation is the merging of several high interest rate debts into one lower interest rate debt. It doesn’t get rid of your debt entirely, it just reduces the number of creditors you have, helping you pay off your debt once and for all. This method of debt refinancing is often praised for helping you improve your financial situation, but it comes with a list of risks you should be aware of.
Specifics of Sabers Capital Debt Consolidation
According to Sabers Capital on Credit Score, there is a significant link between debt consolidation and the former. To consolidate all your debts into one, you must have a fairly high credit score. How high ? Well, over 690 points. A higher score indicates a greater chance of acquiring debt consolidation at a lower interest rate.
How debt consolidation can take place
The most commonly used approaches to debt consolidation are a balance transfer or a personal loan.
1. Debt consolidation via a balance transfer
This is the most common approach. Here, no prepayment penalty has to be paid. Also, it may offer a lower interest rate if you have a decent credit score. Payment procedures are also flexible. But, there is a deadline that is set here. Failure to pay the debt on time may result in a higher interest rate. Additionally, this option results in higher credit utilization, which lowers your credit score.
2. Debt consolidation via a personal loan
Let’s talk about the benefits first here. Benefits range from requiring a lower credit score to combining multiple payments into one. It makes your financial situation much less stressful. Plus, your credit usage is also reduced, which improves your credit by reducing the amount you use. So, a healthy credit mix is sure to be the end result here. On the other hand, this method can hurt your credit score if you are unable to make timely payments. You may also have to pay a prepayment penalty and end up using more available space on your credit card. Thus accumulating your debt even more.
Protect your credit score
Whichever option you choose, your credit score will suffer. However, there are ways to limit the damage. You can increase your credit score by following the right advice. Here are a few.
• Stay alert on your credit card reports. Be sure to check them often and report any errors or unknown transactions.
• Avoid large purchases on credit such as the purchase of a car or a luxury item. Opt instead for personal loans that can be repaid in installments.
• Set up an automatic payment option on your credit card to ensure timely payments. You don’t want to overextend your payment or forget to repay an amount.
• Establish a budget. Try to keep your expenses minimal for a while until your debt is paid off. Only spend on essential products and services and try to save as much as you can.
The alternative approach
If you’ve lost hope now because your credit score is high risk, there is another way out – there always is. Some other options that are there on the table are:
• Home equity loan – this is usually a revolving account. But a credit check here must also reach your mail.
• Debt management plan – this option is always recommended by financial advisors. It has minimal effect on your credit score and helps you plan a strategic and systematic way to pay off your debts.
• 401(k) loan – this does not show up on your credit report, making it a safe bet. However, you risk losing your home if you are unable to repay this loan.
• Debt Settlement – When you’re out of all options, it’s the final straw. When you haven’t been able to qualify for debt consolidation or are unwilling to file for bankruptcy, you can reduce your overall debt by negotiating with your creditors for forgiveness. Here too, a higher credit score guarantees a higher chance of settlement combined with lower fees.
To wrap up
So, now that you better understand what debt consolidation is and what it can do for your credit score, you can pull out your credit card report and do the math. If necessary, you can contact your financial adviser or banking representative for further advice. They are sure to offer you the best advice based on your current credit score and financial situation. But remember, think long term and weigh the pros and cons. What may work for others may not work for you, so it’s important to be careful and make a calculated decision here.
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Sabers Capital Debt Consolidation