Debt consolidation is the combination of various debts that you owe into a single loan. Once you have combined your total debts, you can make just one monthly payment. A few different approaches to combining debt can be taken, including: 

  • Transfer to consolidate the debt using a credit card balance.
  • Application to refinance the existing debt with a new consolidated loan. 

Debt consolidation can roll into one of the two approaches to several existing financial bonds. Ideally, you should have a lower interest rate and better terms with either of the options. 

How does debt consolidation work?

The consolidation of debt is generally limited to unsecured loan liabilities. Encompass Recovery Group provides debt consolidation to different types of loans, including credit cards, student loans, medical bills, and unsecured loans, and installment loans

Do you Hurt your Credit with Debt Consolidation? 

Loan paid in full by consolidationDebt consolidation could be useful for your loan values, depending on your credit score information. If your credit reports demonstrate that you have more credit limits, your values may be affected.

You may decrease your credit utilization ratio by paying off your revolving credit card debt with debt consolidation loan services at Encompass Recovery Group. This decrease in the use of credit could increase your credit score in the long run. Besides, the number of accounts with balances on your credit report can influence your credit ratings, thus the need for consolidation.

Do Balance Transfers Hurt Your Credit?

At Encompass Recovery Group, experience shows that you may also reduce your credit utilization ratio by opening a new credit card and using a balance transfer to repay existing credit card debt. A balance transfer card, however, remains a revolving account. 

A debt consolidation loan could reduce your usage ratio to 0%, that is, if you paid off all of your credit card balances. A new credit card balance transfer will not have the same effect hence potentially improve your credit scores through a credit card balance transfer. 

In general, it’s a chance to improve your scores by paying off revolving credit cards with an installment account.

Is Debt Consolidation a Good Idea?

There are few signs of a wise financial decision to consolidate the debt, including;

  • Your months’ payments are manageable, but in the next few months, you cannot afford to reimburse your high-interest debt fully. Consult the Encompass Recovery Group for help.
  • You can be entitled to a lower interest rate than your credit obligations are currently payable. 
  • You pay off your debts and think that consolidating your balance can help you get rid of the balance outstanding more quickly. 
  • You have a consistent income, a budget, and believe that in the future you can avoid excessive expenditures. 

You can only decide whether debt consolidation is the right choice for your financial situation today. Your choice may however be made a little easier by considering some of the pros and cons of debt consolidation.

Pros of debt consolidation

Consolidating school loans

  • The sum of money you spend on interest could be lowered by debt consolidation. The average rate of a credit card valuation is 16.97%. In the meantime, the Federal Reserve reports that the average interest rate on a 24-month personal loan is 10.21%. 
  • Your debt restructuring could boost your credit. You will benefit from your credit score if you reduce your credit consumption ratio and the number of balancing accounts on your credit reports. 
  • Only pay the current loaner monthly. This can be done better than fees on separate cards. 

Cons of loan consolidation

  • The mortgage is not wiped out by debt restructuring. If you want your new consolidation loan (or a balance transfer card) to clear your debt for good, you must keep up with the budget to discourage over-consumptions. 

Bottom Line

An installment loan consolidation will make your financial life better. However, the way you handle your account and your finances as a whole depends on whether a debt reduction loan benefits you. In specific, stop the inducement of charging your newly paying credit cards with extra balances. You should brace for a potential financial crisis if you charge new balances on your initial accounts. 

Encompass Recovery provides customers with a detailed and unbiased appraisal of personal lenders for all credit criteria. 

We have gathered over 25 data points, including interest rates, costs, credit amounts, and repayment periods, to allow consumers to make the right borrowing decision. Contact Encompass Recovery Group credit advisors for a debt recovery package and also if you have problems with payday loans, credit cards, and other unsecured debt.

References and Resources

How do installment loans work?

Credit utilization ratio