A personal loan can be used to help you make bigger purchases or consolidate high-interest credit card debt. People consider loans as an option when they need help paying for large expenses, such as medical bills or major home repairs. Personal loans typically have lower interest rates than credit cards, meaning they’ll help to save money each month while paying off debt. In addition to the savings on interest, personal loans can also help improve your credit score. Here are some reasons a debt consolidation loan is the best option for people looking to improve their credit score while paying off their debt.
Provides a Plan for Repaying Loans
A debt consolidation loan will combine your debt into one manageable payment each month. This debt repayment strategy makes paying off what you owe easier because it is tailored to your monthly budget. Making on-time payments each month will also help build up your payment history and show credit bureaus that you are making an effort to pay off your debts. Avoid payment delinquency, and make your debt consolidation loan payment every month to make a positive impact on your credit score.
Creates a Better Credit Mix
A credit mix refers to the different types of accounts that you have, such as mortgages, loans, credit cards, and debt consolidation loans. Credit cards are considered revolving credit and debt consolidation loans are considered installment credit. However, having too many open credit lines can put you into a difficult position to make minimum payments. A debt consolidation loan can help you in the following ways:
- It saves you money on late fees and interest rates on multiple credit cards
- Adds a new type of credit to your borrower profile
Adding a debt consolidation loan to your credit mix will help you pay off your debt and demonstrates that you can manage your obligations as a borrower.
Related Article: What Makes Up a Credit Score?
Reduces Credit Card Utilization Rate
Credit Card Utilization also plays a role in your credit score. The ratio is calculated by dividing the total amount of revolving credit you have by the total amount of revolving credit limits. It helps determine how much of your available credit you are using. A low credit utilization rate shows that you are managing your credit responsibly. With a debt consolidation loan, you can stay on top of your credit responsibilities easily, because you only need to worry about one monthly payment.
A debt consolidation loan can help you reduce your total credit card debt over time because it fits your needs and budget. Best of all you can improve your credit score while paying off debt.
If you have questions about debt consolidation loans, speak to our team of knowledgeable professionals. Our compassionate loan matchmakers will find the best terms tailored to your unique situation with fast approval and rates starting as low as 3.84% for amounts up to $100,000.
Get started today on our website. Prefer to talk in person? Call us at 833-453-6324 and we’ll get you connected immediately with one of our loan experts.