Can a Credit Card Debt Consolidation Company Hurt Your Credit?

Many people with high credit card balances think a credit card debt consolidation company will damage their credit rating. The plain and simple answer is no, they cannot hurt your credit rating. If your credit card balances are maxed out and you are having difficulty making your monthly payments, Your credit rating will soon be damaged if it is not already.

Failure to act on your debt payment problems is the worst way to damage your credit rating. Since credit card accounts are unsecured lines of credit, the interest rates are higher than secured loans such as car and home loans. Credit card companies make their profits in several ways.

Unless the credit cards holder pays their balance in full every month and never takes a cash advance, the card holder is charged interest on their purchase balance and a higher finance charge on the advance. If you go over the credit limit, make a late payment or bounce a check, the card companies charge you fees and penalties for this. If you do not pay these fees off right away, interest is charged on them until they are paid. Needless to say, if you have a financial hardship such as a job loss or reduction in your paycheck, these credit card balances will only compound the hardship.

Debt relief agencies are godsends for cardholders with repayment problems. As I demonstrated above, once a card balance becomes unmanageable, your debts will actually snowball to the point of an avalanche. These relief agencies negotiate with your debtors to work out a repayment plan. They usually get the creditors to waive some of the fees and stop future interest and penalties from driving up the balance higher and higher. The debtor makes 1 monthly payment to the agency, the agency disburses the payments to the creditors as agreed. The creditor gets their debt under control and actually improves their credit with every payment they make.

Smothered by Bad Credit? Breathe Easier With Home Equity Credit Line

Lately, have you been feeling as if your bad credit score is making you feel smothered by your bills? Why not take out a home equity line of credit to help you come out from under your financial mess? Online lenders are standing ready to loan you the money you need now, regardless of your poor credit history or blemished credit file.

A home equity line of credit is a revolving credit line that works much like a standard credit card. You can buy the things you need (but can not afford) now, and pay for them later. The difference is that your home equity line of credit, unlike a credit card, is secured by using your home as collateral.

Money to Improve Your Home

Although not a second mortgage, the home equity line of credit can be used to pay for things like home improvements, remodeling, adding another room to your home, education, travel, or more. Many borrowers like to use their home equity lines of credit to do improvements that add value to their homes. In fact, for each dollar that you spend to improve your home or do upgrades, you can expect to double that investment if you ever decide to put your home on the market.

You can also use your bad credit home equity line to pay down bills. If you have lots of credit card or loan payments that you seem to never have enough to catch up with, you can use proceeds from your home equity line of credit to get all your accounts current, or out of collections, if need be.

Because your home equity line of credit will most likely be extended to you at a rate that is much better than rates that you might be paying for credit cards or other loans, you may want to consider paying off some of these debts with your new credit line. Paying off high interest credit cards, for instance, can not only save you money, but also improve the appearance of your credit score by establishing your willingness to pay.

To establish your home equity line of credit, your lender will have a specific formula that is used with each borrower based on their credit score. For example, your lender may be willing to lend you 60% of the appraised value of your home, minus the amount that you have outstanding on your mortgage. This would mean that with a mortgage of $100,000 that you still owe $60,000 on, your credit limit for your home equity line of credit would be 60% of $40,000, or $24,000.

Repaying Your Home Equity Line of Credit

You will have a draw period to use your home equity line of credit, which can be as little as five years or as many as twenty-five. During this period, depending on the terms of your agreement, you might be asked to make minimum monthly payments that are equal to a percentage of the amount you have used of the credit line; or you may be required to pay just the interest on the amount that you have used; or you may be required to pay nothing until the end of the draw period, at which time, you may have several options.

According to your loan agreement, at the end of the draw period you may be required to make a balloon payment of the entire amount you have used on your credit line; or you may be given the option to renew your credit line for a period of a number of years; or you may chose to refinance the principle your have borrowed with another lender.