Debt Free – Tip of the Day – Debt Consolidation – What Is Next?
I am still working on the promised guide to debt consolidation. I realize that a lot of information I touch on is for those who are just getting started on their journey to debt free living. For those pioneers who have already made the decision to work on their budget by debt consolidation or are in the process. Let me stop you from making a mistake that could negatively affect your credit score.
Once the debt is consolidated. Many companies tell you that you have to close the accounts that are getting paid off. Well, there is no law and unless you agree in writing, no one could force you to either. I strongly suggest first ensuring the account is indeed at a zero balance. Second, find out if there are any hidden costs or costs associated with leaving the account open and not using it. Third, incinerate any possible pieces of plastic that could entice you to spend and last do NOT close the account. At least not all of them. Be rational and reasonable about what open credit you have.
The reason I tell you not to close the account is that when the company reports the closure to the credit bureaus, it raises concern for future creditors. The open credit line shows potential creditors that you have the ability to have credit, not abuse it, and make your payments. Closing the accounts actually creates the picture that you are in debt up to or beyond your current credit limit. Painful truth. I have experienced it myself. Of course the reason they tell you to close the accounts is to ensure that you do not spend more and get into trouble again. It indeed is your choice and you must not abuse it if you wish to achieve debt relief.
Finally, I want you to have confidence in yourself. You are not keeping those lines of credit open “just in case” or for a rainy day. You are working to increase your credit worthiness. If you know you will be on the phone tomorrow ordering your new card (since you just incinerated the old one) then by all means, close it. That would be a better choice than to find maxed out again, and with a debt consolidation loan on top of it. It is unfortunate but it happens over and over again. Work hard, live life, and love much. e