Have you ever been in debt? Maybe in just a little bit over your head, or even feel like you’re drowning in it? You’re not alone.
According to a recent study reported by Nerd Wallet, the average debt carried over from month to month in a household is about $137,729. That kind of debt can be very overwhelming. The study’s key findings showed that:
- Parents are more likely to have credit card debt
- Medical costs are growing faster than incomes
- Credit card interest takes a toll.
So what should you do if your credit card bills and other bills are starting to be too much?
Some people turn to debt consolidation. This is when you work with a company to bring to your total monthly payments down while you pay off your cards. It sounds pretty good right?
But there are a few things that aren’t widely known about debt consolidation and very few people learn BEFORE signed up with one of those companies :
- Most debt consolidation companies will have you close your open revolving credit lines. This means close your credit. From there all of your credit cards will go into “Charge Off” which means they were closed with a balance. This derogatory mark looks as bad as a collection on your credit report.
- Your credit scores will take a significant hit and stay that way for the years it takes for the mark to fall off your report – the timeline is 10 years form last active payment.
- Closing your credit cards will remove your payment history with those cards, your debt to income, your diversity of credit and longevity of credit – almost 85% of your credit score will be impacted.
- Often times, your credit report will reflect you are currently working or have worked with a Debt Settlement company. Lenders frown upon this and often will decline your loan outright.
So what does this mean for you? It means before making any decisions, just make sure you have all of the information. Bad credit can cost you a lot of money, over tens of thousands of dollars during your life time when it comes to car insurance, auto loans, mortgage rates and credit card APRs.