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Debt consolidation refers to the process of merging multiple loans, including credit card debt into one single loan. Multiple loans come with different interest rates, loan amounts and loan tenure.

Going in for debt consolidation means you will have to make one single EMI payment instead of different EMIs for different loans. This may help you to keep track of your EMI prudently and make timely payment. However, such consolidation could result in credit score getting lowered during the initial stages but as you keep on repaying your debt on time, your credit score will slowly improve over time and help in lowering monthly payments Therefore, the key to successful debt consolidation to adhere to a specific plan to repay your debt.

Why is a good credit score important?

A good credit score ensures your creditworthiness and increases a borrower’s chances of getting potential loans approved easily by lenders.

How does a debt consolidation loan can help you improve your credit score?

Debt consolidation loan helps a borrower in converting their multiple debts into one single loan thus helping them keep track of their single consolidated EMI payment. Those who have a good credit score would find such an option even more favourable as they are likely to get a better deal through a lower rate of interest and lower processing fees. When you have opted for a debt consolidation loan, in the initial stage you may see your credit score being low.

However, If your keep paying your consolidated loan EMIs on time, it will help improve your credit payment history and credit score over time. Your credit utilisation ratio also gets reduced if you have converted your credit card dues into a single loan. Having a low credit utilisation ratio has a direct impact on the credit score, as it improves the credit score. So, a debt consolidation loan helps improve your credit score over time if timely EMI payment is done.

Key Takeaways:

  • A debt consolidation loan converts multiple debts into a single loan.
  • Debt consolidation can help you improve credit score if timely loan repayments done
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