Does Debt Consolidation Hurt Credit?

Will Debt Consolidation Hurt My Credit Rating?

The concept of how debt consolidation affects an individual's credit rating is complex. In the short term, depending on the method of debt consolidation, it may harm one's credit rating. This is especially true if the debt consolidation involves bargaining with creditors to arrange for a lump payment lower than the outstanding debt. Such debt consolidation tactics will lower a person's credit rating for the immediate future. In the long run, however, debt consolidation is almost always beneficial to a person's credit score.

How Will Debt Consolidation Help My Credit Rating?

In the long run, debt consolidation will help a person's credit rating by making their monthly payments easier to make and easier to manage. Missed payments and many outstanding debts to various creditors are two things that can really harm a person's credit rating. Debt consolidation generally allows a person to pay a lower interest rate and to make only one easy-to-manage payment each month against their debt. Over time, if a person makes their payments on time and sticks to the debt consolidation plan, their credit rating will improve because they will have demonstrated that they are trustworthy to lenders.

How Do I Know If I Need to Consolidate My Debt?

There are several key methods of determining whether it's a good idea to look into debt consolidation. To begin with, those who are simply unable to make their payments at all, and who won't really benefit from debt consolidation, may be better served by simply speaking with an attorney about filing for bankruptcy. Those who could make their payments if their interest rate was reduced, however, are better served by attempting to consolidate their debt into one low fixed-rate loan. This is also true of those who aren't able to keep track of all of their monthly statements and who want to simplify things.