Does consolidating debt hurt your credit score Home chatcam


23-May-2020 09:56

You may assume the credit standing implications of debt consolidation to be minimal since the process basically entails rearranging debt into a single balance, rather than paying it off, but it does have the potential to affect the way in which financial institutions and other decision makers view your credit worthiness.

The short-term impact can be either positive or negative, but either way the change will be minimal.

But of course, before you can decide if it’s the right choice you have to answer some important questions.

One of the most important is, “does debt consolidation hurt your credit score?

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Unlike other alternatives – such as debt management, debt settlement and even bankruptcy – debt consolidation, when done right, won’t damage your credit standing in any significant manner. You can check out our Debt Consolidation Overview if you don’t know exactly how it works, but the basic theory behind debt consolidation is that you can use a new loan or line of credit to pay off existing debt obligations in order to garner a lower overall interest rate and a more manageable monthly payment.

You should get free debt advice before you take out a secured debt consolidation loan.

Before you choose a debt consolidation loan think about anything that might happen in the future which could stop you keeping up with repayments.

The end result is impossible to gauge ahead of time – as it depends on multiple factors, including the extent of your credit history, the accounts you have open, and the actions you take after consolidation.

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In most cases, however, debt consolidation will lead to long-term credit score gains, since it will decrease your odds of default and put you on more stable financial ground.When you’re ready to get out of debt, sometimes it’s hard to know which path you should take.For some people, debt consolidation will be the best option because it can allow you to group all your debt together, thereby making it easier to manage your debt – and in some cases lowering your monthly payment and interest rate at the same time (see our article on how debt consolidation works).Here’s how consolidation can hurt, or help, your credit score.