ATLANTE – Debt consolidation is a useful tool for getting out of debt. It can be good for credit scores and peace of mind, if you do it the right way.
The key here is to get it right. A credit analyst from LendingTree, an online site that provides financing tools and loan research, says that taking out a personal loan to consolidate credit can significantly boost your credit score.
“The biggest benefit of consolidating your credit card debt is lowering your interest rate,” said Matt Schulz, chief credit analyst at LendingTree. And that’s especially important with the Fed appearing to be raising rates non-stop here in 2022.”
LendingTree’s analysis shows that when its clients paid off at least $5,000 in debt with a personal loan, the average credit score rose 38 points in a single month. Even though the borrower was repaying less – between $1,000 and $5,000 – the score increased by an average of 17% over a single billing cycle. And, if you already have a good credit score, which is 720 and above, the savings from consolidating multiple debts into one personal loan can save you 14% in the long run.
If you have good to excellent credit, get a personal loan, or even get a zero-rate credit card balance transfer, you can significantly reduce the interest you pay each month.
“And if you can significantly reduce your interest rate, that can significantly reduce the amount you pay to pay off that balance, as well as the time it takes to pay it off. So that’s a big deal,” added Schulz.
LendingTree offers a debt consolidation calculator so you can see the benefits: Try the math.
But this is where it can fail. If you don’t stop using your credit cards, you can make your credit situation worse. If you’re still charging fees, you’ve added more debt to that loan or balance transfer.