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					Can a Debt Consolidation Loan Help Your Credit Record?

By: Katie Morgan

Unpaid monthly payments will damage a person's credit history. Even though you may plan to make
double payments the following month, the missed payment will show up as a negative, and may
compromise your future ability to borrow money or extend your credit limit on existing accounts. That is
why it is important to make every effort to pay your bills on time. Sometimes a creditor will let you
make partial payments temporarily for extreme conditions, such as disability or unemployment. Still,
you will have to find sources of funding that will help you make those credit card payments and either
avoid a negative credit history or prevent your financial standing from damaging reports if the bills
remain outstanding.



A debt consolidation loan may be the answer to your problem. Although a loan will not automatically
reduce your debt load, it can provide smaller payment options that will ease your financial strain and
help you stay current with monthly balances. A consolidation loan could provide several benefits toward
paying off your credit card debt in a timely manner without defaulting and hurting your credit
reputation.



1. Shop around with different lenders to see if you are eligible for a debt consolidation loan. The internet
is an incredible resource for debt management and offers a wealth of information if you know where to
look. One such resource is www.banklady.com. Potential lenders will consider several things to see if
you can get a loan of this type, including the amount of debt you currently owe and the monthly
payments that are due for each one, your household income, previous credit history, paid items that
were financed-like a car or a boat, and your ability to make monthly payments for the proposed
consolidation loan.



2. If it appears that you are eligible, you can submit an application for the debt consolidation loan. You
may be able to do this from home at your computer. This would be helpful if you need to consult
records and pay stubs rather than bring them all to the bank for copying. On the other hand, making an
appointment with a loan officer to review some of the necessary records will give you the opportunity to
ask questions and clarify information. Make sure the application is filled out correctly and completely, as
missing information could delay an answer.



3. After discussing figures with the loan officer, make sure that you can afford the debt consolidation
monthly payment. There's no point in refinancing if the new payment will still be hard to meet. Try to
get the due-date set to a day each month right around payday, so you can make the payment before
spending that money on other things. Payroll withdrawals are another option that will automatically
deduct the monthly payment from your paycheck before you ever get a chance to see or spend that
amount. Ask your lender if this option is available, and if you use it, be sure to deduct the payment
amount from your check register each month.



Should everyone in financial trouble take out a consolidation loan? Not necessarily. There are potential
drawbacks to consider, so do your research before making the decision to apply for the loan.



1. How long will a debt consolidation loan extend your current balances? If your present credit card
balances could be paid in full within three years by making regular payments as scheduled, is it advisable
to refinance your debt and extend the loan another three to five years? You could end up paying far
more over the life of the loan than you would by keeping current with regular debt payments. Compare
the two to see if refinancing is in your best interests.



2. What will be your new interest rate? A debt consolidation loan generally is an unsecured loan, which
means you may pay a higher interest rate than you might for a secured purchase, like a new car loan, for
example. If your current credit card debt interest averages at six percent, and your new loan interest will
be nine percent, how much more will you end up paying until the balances are paid in full?



3. Consider upcoming circumstances. For example, if your financial crunch is temporarily due to having a
child in college, and he will graduate in a year, is there a way to make regular payments during this time
by tightening the household budget rather than by refinancing a loan? You might be able to use your
job's year-end bonuses, an unexpected windfall, or a postponed vacation as a source of revenue to help
you meet the present payment schedule, which could save money associated with the costs of a loan
application, a longer payment scheduled, and higher interest.



These are some of the issues that typically come up when people think about refinancing their credit
card debt to protect or clear their credit records. Give careful thought to the pros and cons of a debt
consolidation loan before switching debt balances to a new lender.



Author Bio

This article was written by Katie Morgan. If you have less than excellent credit and are curious about
your options, you'll find everything you need to know about credit or obtaining a loan right here in one
location. Reproductions of this article are encouraged but must contain a link pointing back to
www.banklady.com



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posted:12/30/2011
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