{"id":36942,"date":"2022-11-28T09:04:08","date_gmt":"2022-11-28T17:04:08","guid":{"rendered":"https:\/\/financer.com\/?post_type=wiki&p=36942"},"modified":"2025-02-23T20:49:29","modified_gmt":"2025-02-24T04:49:29","slug":"does-debt-consolidation-hurt-your-credit","status":"publish","type":"wiki","link":"https:\/\/financer.com\/loans\/articles\/does-debt-consolidation-hurt-your-credit\/","title":{"rendered":"Debt Consolidation: Does It Hurt Your Credit?"},"content":{"rendered":"\n

Debt consolidation<\/a> is a popular way to manage debt, but does it actually help or hurt your credit score?<\/p>\n\n\n\n

Debt consolidation can have both positive and negative effects on your credit.<\/p>\n\n\n\n

If you consolidate your debt with a personal loan<\/a>, you may actually see an improvement in your credit score. However, if you use a balance transfer credit card to consolidate your debt, your credit score may take a hit.\u00a0<\/p>\n\n\n\n

We’ll explore the answer to this question in more detail and provide some tips on how to make debt consolidation work for you.<\/p>\n\n\n\n

What Is Debt Consolidation?<\/h2>\n\n\n\n

Debt consolidation is the process of taking out a new loan to pay off multiple existing debts. This can be an effective way to reduce your overall monthly payments, and the total interest you are paying on your outstanding debt.<\/p>\n\n\n\n

According to Bankrate<\/a>, 38% of consumers stated debt consolidation was the reason they applied for a loan in the first quarter of this year. <\/p>\n\n\n\n

However, it is important to remember that debt consolidation is not a magic solution to your financial problems, and it can actually have a negative impact on your credit score if not done carefully.<\/p>\n\n\n

<\/div>If you are considering debt consolidation, it is important to weigh all of the potential pros and cons before making any decisions.<\/div>\n\n\n

One key factor to consider is whether or not you will be able to qualify for a low interest rate on your new loan. If you have good credit, you could find a loan with a relatively low interest rate that can save you money over time. <\/p>\n\n\n\n

However, if you have poor credit, you may end up with a high-interest loan that could actually end up costing you more in the long run.<\/p>\n\n\n\n

Another factor to consider is how consolidating your debt will impact your credit utilization ratio \u2013 this is the percentage of your available credit that you are using at any given time.<\/p>\n\n\n\n

Consolidating your debt can help lower your credit utilization ratio, which can be helpful in boosting your credit score over time. <\/p>\n\n\n

<\/div>

With the average American having more than $90,000 in debt<\/strong> according to a 2021 CNBC report<\/a>, it’s not surprising that debt consolidation loans have become a popular choice among consumers feeling the mounting pressure.<\/p><\/div>\n\n\n

However, if done poorly, consolidating your debt can actually lead to a higher credit utilization ratio, which can have the opposite effect and hurt your credit score instead.<\/p>\n\n\n\n

Does Debt Consolidation Hurt Your Credit?<\/h2>\n\n\n\n

Debt consolidation can have both positive and negative effects<\/strong> on your credit. <\/p>\n\n\n\n

On the positive side, debt consolidation can help you get a lower interest rate on your debts, which can save you money over time. It can also help you pay off your debts faster, which can improve your credit score.<\/p>\n\n\n\n

On the negative side, debt consolidation can lead to more missed payments and a higher overall debt balance, which can hurt your credit score.<\/p>\n\n\n\n\t\t

Compare loans from 48 lenders<\/h3>

Find the cheapest rate with one click<\/p>

\n <\/span>\n <\/div>\n
\n \n <\/div>\n<\/div>
Compare Offers<\/a><\/div>\t\t<\/div>

The Pros and Cons of Debt Consolidation<\/h2>\n\n\n\n

When you\u2019re struggling with debt<\/a>, the idea of consolidating your loans into one lower monthly payment can be very appealing.<\/p>\n\n\n\n

But does debt consolidation hurt your credit?<\/strong><\/p>\n\n\n\n

There are both pros and cons to consider when deciding whether or not to consolidate your debt. On the plus side, consolidating your debt can help you get a lower interest rate and lower monthly payments. <\/p>\n\n\n\n

It can also help you pay off your debt faster.<\/p>\n\n\n\n

On the downside, however, consolidating your debt can also lead to an increase in your overall debt balance, and it may take longer to pay off your debt if you extend the term of your loan.<\/p>\n\n\n

The Pros<\/h3>\n

<\/p>\n