Write About Everything

Does Debt Consolidation Hurt Your Credit Score?

Advertiser disclosure You’re our first priority. Everytime. We believe everyone should be able to make financial decisions with confidence. And while our site does not include every company or financial product available on the market We’re pleased that the guidance we offer as well as the advice we provide and the tools we develop are objective, independent easy to use and completely free. So how do we earn money? Our partners compensate us. This may influence which products we review and write about (and the way they appear on our website) However, it does not affect our suggestions or recommendations which are based on hundreds of hours of study. Our partners do not be paid to ensure positive review of their services or products. .

Do Debt Consolidation Loans Hurt Your Credit?

Consolidating debts into one installment that’s easier to handle can help your budget and credit However, there are some the potential for dangers.

By Bev O’Shea personal finance writer | MSN Money, Credit.com, Atlanta Journal-Constitution, Orlando Sentinel Bev O’Shea is a former NerdWallet authority on consumer credit, scams and identity theft. She holds a bachelor’s level degree in journalistic studies from Auburn University and a master’s in education from Georgia State University. Before joining NerdWallet, she worked for newspaper publishers, including daily ones, MSN Money and Credit.com. Her work was featured throughout the world in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and other publications. Twitter: @BeverlyOShea.

February 1 Feb 2023

Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years at The Oregonian in Portland in roles including copy desk chief and team editor and designer. Prior experience includes copy and news editing for various Southern California newspapers, including the Los Angeles Times. She received a bachelor’s degree in journalism and mass communications at the University of Iowa.

The majority or all of the items featured on this page are from our partners who compensate us. This influences which products we feature and the location and manner in which the product is featured on a page. However, this doesn’t influence our evaluations. Our opinions are our own. Here is a list of and .

Consolidating debt can reduce the monthly payment, but it also can cause a temporary dip on your score. Two popular debt consolidation strategies include obtaining a loan or .

Any credit application typically triggers an impact on your credit score and can affect the credit rating by just a couple of points for several months. However, the effect on your credit of debt consolidation should be positive if you are sure you pay on time and make changes to the habits that led debt to stack up.

We’ll take a closer analysis of the possible effects on your credit score when you consolidate debt using an individual loan or balance transfer credit card and other debt consolidation options.

Know how your credit is evaluated

See your free score and the factors that impact it, and get tips on how to continue building.

How can debt consolidation affect your credit

Combines several debts into one which is typically with a lower interest rate.

A lower number of payments to manage can help you budget. And cutting the interest rate can help you faster, since a larger portion of your monthly payments go towards debt, not the interest.

Consolidating debts using the help of a personal loan

Pros:

It generally requires a lower credit score to be approved than an account that is a balance transfer. (Not sure of where you stand? Check your with NerdWallet.)

This can improve your situation If you only had credit cards since it’s an installment loan.

You can combine multiple payment into one, making it easier to manage your finances.

by reducing the credit limit by transferring the balances of your credit card to installment loan.

Cons:

This could lead to more debt if you use all the space available on credit cards.

If you are overextended and are unable to make payments, missed payments can damage your credit.

There are high costs for borrowing money if you do not are aware of the APR.

The loan may come with an early payment penalty, locking the borrower into a specific payment period.

>> MORE:

Consolidating debt by using the help of a balance transfer card

Pros:

It is possible to get lower interest rates (often for a set time), including a 0 APR of 0% for good credit consumers.

Flexible payments are easier than loans. loan.

No prepayment penalty.

Cons:

Your score could initially drop because of if you use lots of the credit limit of the card.

You may owe interest if you don’t pay off the debt before the initial rate expires.

Other alternatives for debt consolidation

If none of those options seem to be a good match There are many other options that could impact your credit score.

Be aware that it’s not the best idea to swap unsecure debt (like credit card debt) with secured debt (like a mortgage or a car loan) because you could lose your home or your vehicle if you can’t pay.

: This is reported as either an installment loan or revolving account, according to the loan type you receive. Additionally, you’ll have to pay for a the credit report.

Debt management plan: Meeting with a credit counselor and enrolling in a DMP does have no direct impact on your credit score, however negotiating to pay less than the total payment amount or closing your credit card may hurt your score. A DMP is recorded to your credit reports while it’s in effect however it is not reflected after the plan has been completed.

It’s not listed as a credit-related issue on the report you have, which means it won’t impact your credit score. However, you’re sacrificing profits from investments, and the effect grows over time. This is the best option as an option last resort.

The author’s bio: Bev O’Shea is a former credit writer at NerdWallet. Her work has appeared on the New York Times, Washington Post, MarketWatch and elsewhere.

In a similar vein…

Dive even deeper in Personal Finance

Make all the right money moves

In the event you loved this article and you would like to receive much more information about online payday loans no credit check louisiana (thebestloan.ru) kindly visit the internet site.