Step 4 - Consolidate My Debt to One Lower Payment

Consolidate Debt to One Lower Payment

Now it's time to get serious about debt relief with this 4th step which will totally repair your credit. And if you are staying true to step 3, then your credit score is already improving and your credit monitoring signup that you hopeffully did in step 1 for your free credit reports is giving you a glimpse of this.

If you did steps 1 through 3 congratulations! Now step 4 will be easy. If you didn't do all steps 1 thru 3, then go back and do them now, so when you come back to step 4, then step 4 will be a breeze. What are you waiting for? Let's do it!

In this step we are going to focus on accelerating the debt problem with debt consolidation for debt relief. The amount of outstanding debt on your accounts is by far the biggest factor that is hurting your credit score at the moment. And while handling and managing multiple payments might be a huge hassle for you, consolidating your debt just might be the solution. Consolidating your debt would mean that you pay off the debt on multiple accounts by taking a single larger loan – one that will have a lower interest rate. However, before you jump head on into this option, you should understand the complete benefits of debt consolidation, so that you are absolutely certain of this debt relief option:

1.Evaluate Your Debt Situation

Every individual has a different debt scenario. You should understand your situation before you apply for debt consolidation. Ask the following questions:

  • How much debt do you have? Scrutinize your credit card accounts online and calculate the outstanding debt on all.
  • How much do you pay off each month? Devise a realistic percentage.
  • How much time do you have to benefit from the introductory low-APR, before it reverts back to the standard, and sometimes, much higher APR?
  • Should you opt for a personal loan instead?

Finally, compare how much you will be saving on the debt consolidation option versus your current interest rates. This should give you a clear understanding of what debt consolidation can do for you.

2.Consolidating Your Credit Cards Can Bump Up Your Credit Card Score

With the help of debt consolidation, you are very likely to see a jump in your credit score within a few months. This is because you are reducing your credit utilization ratio, which accounts for about 30 percent of your score. This ratio is the amount or debt you owe on your credit card divided by the total amount or limit of credit that is available to you. If you’re maxing out your credit cards, you should expect a low score.

Here’s a huge fact that you absolutely must know: It is only revolving lines of credit that are factored in into your credit utilization ratio – not your installment loans. So, when you opt for a personal loan – which is a kind of installment loan – you shift the balance of debt onto another category altogether; one that has minimal impact on your credit score. Consequently, your score improves.

3.Consolidating: Card Vs. Personal Loan

In the event that you choose to consolidate with a 0% card, there are a few considerations. On one hand, your available credit increases; this helps your credit utilization ratio. However, since you’re supposed to be maintaining a 30 percent debt on your card, this card consolidation scenario isn’t very ideal. Even with this all, you will enjoy the benefit of paying off several cards, and focusing on a lower repayment rate in the beginning.

4.Reduces The Stress

Regardless of the debt consolidation method you choose, suffice to say, it has its benefits by allowing you to swap multiple credit accounts with a single large account that you can focus on with convenience. There is no fear of missing out on payments (which hurts your credit score); you don’t have to worry about receiving collection calls; and you enjoy a lower interest payment for most part of the debt repayment phase – if not all.

Debt consolidation – the fourth step in our 7 Baby Steps to Fix Bad Credit – is all about debt repayment management. If you’ve managed this step successfully, move onto the next one which is credit monitoring. Don’t let debt take over your life. Let help you!


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