Consolidation loans involve replacing a number of loans with one loan that may or may not be at a lower interest rate. Some borrowers may find themselves in a situation where their monthly debt payments have outgrown their budgets.
Creditworthiness and Credit Scores
So, they consider obtaining consolidation loans, in the hopes of reducing the costs on their high-interest monthly debt payments.
However, the interest rates of consolidation loans depends on a borrower’s creditworthiness and their credit score. Which are, in turn, affected by the amount of debt they have and their monthly income, among other factors.
Borrowers with poor credit scores miss out on opportunities to save lots of money on interest rates, as they don’t qualify for low interest rates.
Consolidation loans Temptation
The biggest problem with consolidation loans is that, once borrowers have paid off all of their high interest debt, they could just clock up more debt on their credit cards in the future, if they are not careful.
For some borrowers it may prove too tempting to resist using their credit cards again, after paying them all off via consolidation loans. If they lack self-discipline, they may find themselves having to pay off consolidation loans, on top of all of their high interest credit debts – double trouble!
Cutting up or hiding credit cards is only a temporary solution as, while these accounts are open, borrowers can still go apply for new credit cards, if they wish to regain access to these funds.
The catch 22 with consolidation loans is that, if borrowers close all of their high interest accounts to ensure that they cannot make use of them again, their credit score will be adversely affected by their poor credit utilisation rate.
If you find yourself struggling to make your debt repayments, National Debt Advisors can offer you safe, proven debt solutions to suit your personal circumstances. If you have a bad credit score, we can help you get a clearance certificate, ease your household cash flow and resolve your monthly payment problems.
Get in touch with National Debt Advisors today by sending us your contact details via the online contact form on our website and we will call you back.