The Effect of Debt Consolidation on Credit Score

If you are finding that even the minimum payments on your debt are too high, there are several options to choose from. These options range from credit counseling, to debt settlement to debt consolidation.

What is debt consolidation?

Debt Consolidation allows you to take all of your debt and reduce it to a single, monthly payment on a loan. The lender will typically pay off your debt, such as credit card debt and car loans. You will then pay the lender every month until the whole debt is paid off.

Impact on credit score

A debt consolidation loan should not harm your credit score so long as you pay it every single month. All of your credit cards and other loans will show on your credit report as having been paid off.

What this will not do

Debt consolidation will not eliminate any debt. It might have a lower interest rate, which could save you in the long run, however the total debt remains the same.

What this will do

It will, however, help get your bills under control. This could help your score right away since you should no longer show as being late on any more payments going forward.

Be sure to avoid

Use a bank, not debt consolidation companies. The companies charge too much and often do not deal with your debt properly.

References

• 360 Degress of Financial Literacy: Debt Consolidation
• Federal Trade Commission: Knee Deep In Debt
• Money Central: Your Three Worst Consolidation Moves