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Does debt consolidation work and help improve your credit score?*

I am really bad with paying bills and my credit has taken a hit these past couple years. I make enough money where I should be able to pay everything with no problem but for some reason I continue to struggle. Do you think a debt consolidation would be best for me and to help me improve my credit score? Does this really work?

Answers:

1) Paying OFF what you owe would help your credit score. Just consolidating your debt, since you'll still owe it, could make things worse, especially if you run up additional bills.

2) Yes. What happens is you pay off a batch of cards and even though your total debt remains the same the fewer outstanding balances work in your favor. Also, you should be able to get a lower interest rate and with one payment you won't have to play the games credit card companies like to play like how they credit payments or their "interest rate adjustments."

3) You can use debt consolidation to improve your credit score, but you must be disciplined about it, or it can put you in a worse position. The benefit of consolidating your debts is: 1) It eliminates multiple payments (to several creditors) and often results in a lower monthly payment, which improves your cash flow, and thus your credit rating. 2) It zeroes the current balance in some of your accounts, which means you have "unused" credit with those lenders, which also adds to your credit score. The dangers, of course, are that with more cash available (due to lower payments) and those "unused credit" potentials, you might be tempted to spend more, and thus get yourself in deeper trouble than you were in before. If the temptations are greater than the rating rewards for debt consolidation, a better approach might be to simply pay off those debts. The first step is to pay more than the required minimum payments -- maybe double would be a good idea -- and make it a rule to send the payment immediately when you receive the bill. And even more important is to put away the credit cards for a while. Try a week each month with no charging of anything. Give yourself a "pocket money" budget, and pay cash only. When your "pocket money" is gone, wait until your next budget period to buy anything more. By establishing these rules for yourself, you'll be giving conscious attention to your credit situation -- it'll keep you focused on your long-term intent to clear your debt and improve your credit rating. You want to set a final goal of getting to a point where you still use your credit cards for the convenience of a single billing per month, but then when you receive the bill, you pay it in full! When you're not carrying debt from one month to the next, there are no finance charges to pay. You'll have more to spend in the long run, and you'll feel better about yourself.

4) Nope. Most charge insanely high fees and most don't work. You are only going to improve the situation by actually paying attention to your finances. If your situation is dire - try Dave Ramsey. He's hard core but his plan works - but only if you grow up and get serious.

5) It will, but you need to put a hard efforts on it until it reduces to the point where you can handle it yourself. Also the process isn't easy and requires you to be enduring either financially or mentally.

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