Many people are aware of the fact that debt consolidation can affect their credit ratings. But what they don't know is if debt consolidation will affect their credit rating in a good or bad way. The truth of the matter is that debt consolidation can actually harm your credit rating or it can help your credit score, what it depends on is if you are responsible and smart with your debt consolidation. Here are three reasons why using a debt consolidation program can affect your credit ratings in a positive way.

Number one:
If you have a lot of credit card debt to begin with this is actually negatively affecting your credit. Not very many people are aware of this because the credit card companies don't usually tell people about this. But what happens is that if you have a balance on your credit card, meaning if you carry a balance from month to month, is that your credit rating is negatively affected. This only happens if your credit card balance is over 25% of your actual credit limit and it affects your credit rating even if you pay your payments on time. So by taking out a debt consolidation loan and paying off your credit card debt you are actually doing your credit a favor because you are getting rid of things that are negatively affecting your credit.

Number two:
If you are going to be taking out a consolidation loan then you should take out a loan that is big enough to cover a car loan or a personal loan. Or if you plan on joining a debt consolidation program you should have those types of loans consolidated as well. The reason for this is that when you consolidate those loans they are going to show up as paid on your credit report. And the point of the matter is that credit companies love to see that you have paid off a car loan or even a personal loan. And the best part is that by paying these loans off you are going to improve your credit rating by quite a bit.

Number three:
And if you are even thinking about debt consolidation for your credit card bills then it is pretty obvious that you actually need to do something to get a hold of your debt. And one of the best ways to do that is debt consolidation. But the key to using this solution to get rid of your debt and not hurt your credit score in the process is to be smart about what you are doing. The main thing that you need to keep in mind is that if you are consolidating your debt then you need to quit accumulating debt, meaning do not rack up your credit card bills again you simply need to quit using them. If you end up running them back up or accumulating new debt then you have not done anything to help yourself and can be worse off than when you first started.

Here are some things that you can do on your own to get rid of your debt and the best part is they will not affect your credit score at all, well at least until you have gotten rid of the debt and then it will do nothing but improve your credit score.

Number one:
Create a budget. This is actually the first thing that you should try when getting rid of your debt, and it is also the most important thing that you can do to help get rid of your debt. But what it does is it allows you to take control of your finances and only allows you to spend what your income allows. Here is what you are going to need to do in order to create a budget:

• Sit down and make a list of your monthly expenses and your monthly income
• Make a list that includes all of your outstanding debt
• When making these lists you want to be realistic about your spending and yourself because if you end up underestimating your spending you are not going to be very successful in creating a budget, which will end up hurting you.
• Don't try getting rid of all of your extra expenses, but instead try to find ways to cut back and live within your means
• Create a plan for your money each month
• In this plan you are going to want to give specific percentages to each category of expense, including paying off debt.
• Now you just need to make sure that you follow this plan and budget each month

Number two:
Prioritize your bills; basically put them in order so that you pay off the worst ones first. In order to do this what you are going to need to do is to get all of the information together about your debt, this includes loans, credit cards, etc. what you want to do is find out the interest rates for all of your debt and if the interest is tax deductible. Once you have gathered this information you want to then sort the bills into deductible and nondeductible piles. The bills you want to start paying first are the ones that have the highest interest rate and are not tax deductible. This will help you save money in the long run because you are not going to be paying as much in interest as you were, which will also help get you out of debt faster.

Number three:
Minimize your credit card use to get rid of debt. Credit card debt is the worst kind of debt that people get into. The reason for this is that is easy to fall into, which also makes it dangerous because of how easy it is to get credit and then just use your card rather than cash. In fact on average most Americans carry an average of $8,000 in credit card debt and they paid $50 billion in finance charges in 2001. The reason that these numbers are so high is because of how much the credit card companies solicit your business which makes you more susceptible to carry multiple credit cards, which gets you into even more debt. So what you want to do is to stop putting things on your credit cards, especially the high interest ones. Try paying more than the minimum payment each month so you can get out of debt faster. The best thing to do is to stop using them all together because the sooner you stop using the credit card or cards the sooner you can get out of debt.

Number four:
If you don't think you can do it on your own or if you are just feeling stressed out with the amount of debt that you have you should talk to a financial advisor. In fact this is a good thing to do before you take any big steps to get rid of your debt, such as taking out a loan or using debt negotiation.  When it comes to talking to a financial advisor this can be anybody at your bank, an accountant or even a professional debt counselor. But before you talk to anybody make sure that you do your homework and ask for references so that you can find somebody that you can trust.  You also want to make sure that you find somebody who can help you understand all the complexities of financial responsibility, explain to you the status of your debts, and most importantly advise you on the best ways that you can go about getting rid of your debt. This includes offering you solutions that are not going to negatively affect your credit, as well as options that might ding your credit in the beginning but improve it later on.

But no matter what method you decide to go with to get rid of your debt the important thing is that you need to understand is how to get rid of debt without ruining your credit even further. And the best way that you can get rid of your debt is to take control and responsibility of your financial habits and situation. The reason for this is that by taking control of these things you are going to become aware of the ins and outs of all your financial accounts and debts. What you are going to want to be aware of in particular is interest rates on your credit cards and loans, tax deduction of any interest that you pay and about how the financial choices you make now and in the future will affect your credit rating. The reason that you are going to want to know and understand all of this information is because it is going to help you get out of debt. And the only way that you are going to be able to get yourself out of debt is to understand where your money is going and why it is going there.