Roughly one in two Australians has experienced some form of financial stress in the past 12 months. It’s not hard to see why — mounting global pressures, inflation, and changing financial responsibilities have all made it more difficult to write bills in a timely way. Loan repayments that once felt trivial may now be heavier on your wallet, pulling you into what feels like an endless cycle of debt. If these loans continue to put pressure on your finances, you may start to see your credit scores suffer as a result.
One of the best ways to improve a poor or bad credit score is with the help of a debt consolidation loan. By compacting any outstanding balances into a single monthly payment, Australians can regain control over their finances and watch their credit scores return to normal.
Let’s explore how debt consolidation loans can improve the average person’s credit score, as well as the steps required to boost said credit score using regular monthly payments.
Breaking down debt consolidation
Debt consolidation is the process of using a single loan to pay off other outstanding personal loans. The borrower will make a single monthly payment under one interest rate, and reduce their overall expenses as a result.
Most debt consolidation loans roll all debts into a single payment, including medical bills, car loans, payday loans, and much more. Just one payment per month allows borrowers to put less strain on their wallets, protecting their credit score from dropping below a desired threshold. The payment being made is generally quite a bit smaller than maintaining several different loans too, due to the reduced interest rates and fees being paid.
How does debt consolidation improve credit scores?
Will consolidating debt improve credit scores? There can be some immediate negative effects on your credit score, and it may inhibit your ability to secure other loans for a time afterwards. But for some borrowers, this is a path worth pursuing. It’s important to consider whether holding multiple loans is more likely to cause you to default, which in turn can have far more deleterious effects on your credit score. So over a longer period, consolidating debt can certainly be beneficial to your overall financial health.
As regular payments are made to the debt consolidation lender, new bill histories will be added to the borrower’s credit history. These payments show regularity, timeliness, and intention in spending habits, and proves that they are capable of borrowing money in the future.
Continuous payments also demonstrate that borrowers are actively working on getting out of debt. In turn, credit bureaus reward borrowers who maintain a lower debt to income ratio with higher credit scores, which may also incrementally increase over time.
The benefits of consolidation
There are many reasons why Australians consolidate debt — lower interest rates, smaller and faster repayments, and a reduced risk of late fees tend to be among the top reasons. Making a single payment to a creditor is also far more efficient than having to juggle multiple repayments to multiple outlets, too.
When used judiciously, debt consolidation can:
Get out of debt faster than before
Save money with reduced interest rates
Put your budget back on track
Over time, each of these benefits may positively impact the quality of your credit score. In turn, they can allow you to rebuild your finances with a reduced risk of slipping back into debt.
Will debt consolidation help my credit?
Debt consolidation is a long-term strategy that’s very popular for rebuilding Australian credit scores. However, debt consolidation isn’t a get-out-of-debt free card; there are implications for your credit score, and your future borrowing plans need to be carefully considered. It’s not always the right option for every borrower — so before making the decision, we’d advise you to assess your situation with an expert. It’s critical you’re aware of your current financial situation before applying for a debt consolidation loan, and that you fully understand the implications and expectations of the borrowing process before signing any documents.
Steps to improve your credit score using debt consolidation
Once you are certain that debt consolidation loans would be a good fit for your lifestyle, you can begin the process of improving your credit score almost right away.
At Salt and Lime, we recommend the following time-tested strategies:
Never miss a payment. Be sure to mark all deadlines on your calendar or itinerary, and plan in advance for funds to be removed from your account. Regular payments show credit bureaus that you are a reliable and efficient bill payer, improving your score over time.
Do not take out any additional debts. Focus only on your debt consolidation loan, and reduce other personal liabilities that may put a hard inquiry onto your credit score.
Reduce your credit limit. Many credit bureaus take overall limits into account while quantifying a final credit score. Do what you can to lower these limits, and use less debt in your daily purchases.
Check your credit report often. In Australia, citizens are free to check credit scores for free using Experian, illion, and Equifax. Regularly checking your score allows you to monitor the efficacy of current strategies, as well as make improvements in the future.
Keep in mind that the process of rebuilding a credit score is not always very fast. Although most Australians will start to see improvements within the first few months, your score may take more than a year to reach its desired threshold. Simply stay the course, make regular payments, and continue to follow all of the usual best financial practices.
Apply for a debt consolidation loan online with Salt and Lime
The first step toward rebuilding your credit score is to apply for a debt consolidation loan online. With the team behind Salt and Lime, we make it easier than ever to access the funding you need right away. Get a response from a lending agent within just a few days, and receive funds disbursement in two or three business days.
Stop struggling to improve your credit score on your own. Contact the debt consolidation experts at Salt and Lime to start seeing marked improvements in your credit score and financial standing. A simple online contact form is all you need to get started!