How to Consolidate Credit Card Debt Without Hurting Your Credit

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How to Consolidate Credit Card Debt Without Hurting Your Credit

Debt Consolidation: What Is It?

Consolidating many existing obligations, such as high-interest credit card accounts, into a single liability is known as debt consolidation. You can accomplish that by taking out a home equity loan or line of credit (HELOC), consolidating numerous credit card balances onto one credit card, or using a debt consolidation loan or other personal loan.

How to Consolidate Credit Card Debt Without Hurting Your Credit

Any of these techniques may raise your credit score; however, if you use them carelessly, they may lower it if you stop old accounts too soon or make late payments. What you should know if you’re considering consolidating your credit card debt is as follows.


  • Debt consolidation is one practical way to manage and reduce credit card debt without negatively impacting your credit score.
  • When selecting a consolidation strategy, factors like interest rates, repayment durations, and the effect on your credit utilization ratio are crucial to take into account.
  • Avoid common dangers such as getting into a debt cycle, prematurely shutting existing credit card accounts, and not making payments on new credit cards or loans.

The Effects of Debt Consolidation on Credit Scores

Deb consolidation might have both favorable and unfavorable consequences on your credit score. Consolidating debt will temporarily lower your credit score because Lenders will perform a complex query on your credit reports if you apply for a credit card, personal loan, home equity loan, or home equity line of credit (HELOC). Your credit will suffer for a while as a result.

1. Similarly, because they are new, that new credit card or loan will also momentarily harm your credit if your application is approved. Among the variables that go into calculating your credit score, new credit accounts make up about 10% of the most common kind of FICO scores.

2. After debt consolidation, closing your credit card accounts might lower your credit score by raising your credit utilization percentage. That is the ratio of your outstanding debt to the entire amount of credit accessible to you. The “amounts owed” category in FICO, which makes up 30% of your credit score, is primarily influenced by your credit utilization ratio.

Your credit score may be further harmed if you make late or missing payments while consolidating your debt. Payment history is the single most significant factor (35%) influencing credit ratings.

However, debt consolidation frequently raises your credit score over time:

Your credit score will rise if you can manage your payments more efficiently and make them on time with only one payment.

You should be able to pay off your debt more quickly if the interest rate on your new loan or credit card is lower than the one you were previously paying. This will decrease your credit utilization ratio, raise your credit score, and save you interest money.

In a similar vein, if you don’t rush to close the previous accounts, the new credit account will increase your available credit and improve your credit utilization ratio.

Solutions for Debt Consolidation That Don’t Damage Credit

There are several ways that you may combine your credit card debt. If you pay your bills on time, none of them will negatively impact your credit.

Transferring credit card balances

There are a lot of credit card firms that provide cards that let you transfer your balances from one card to another. Usually, balance transfer credit cards offer a promotional term of 12 months, during which the interest rate is either 0% or very low. This can help you pay off your debt more quickly and save money on interest.

When moving balances, the credit card operator usually assesses a balance transfer fee—typically between 3% and 5% of the transferred amount. For example, if you transfer $3,000, you could pay up to $150.

If you want to maximize your savings on a balance transfer, pay off the credit card before the special interest rate expires and the new, often considerably higher, rate takes effect.

Consolidating credit card debt through loan

You may want to apply for a loan to combine your debts if you don’t want to get a new credit card or don’t qualify for a suitable one. Look around for an interest rate far lower than what you are presently paying on the debts you intend to combine to receive the best deal.

You may want to consider a personal loan or a debt consolidation loan. Although they are both personal loan types, debt consolidation loans are designed for that particular use.

You may be qualified for a home equity loan or line of credit (HELOC) if you own a property. While the latter is available as a credit line you can draw from as needed, the former is provided in one lump sum you must pay off over time. A warning with home equity loans and home equity line of credit (HELOCs) is that they are backed by your house, thus if you are unable to make the payments, your lender may seize on your property.

In contrast, the majority of credit cards and personal loans are unsecured.

Plans for managing debt

Although they might accomplish comparable goals, debt management strategies and consolidation are different. You can work with your present creditors to reach a settlement that usually involves lower interest rates with the assistance of a nonprofit credit counseling organization. After that, you provide the agency with a single monthly payment, and the agency pays your creditors.

With a debt management plan, paying off your debt might take three to five years, depending on how much you owe. Enrolling in a debt management plan won’t lower your credit score, claims the National Foundation for Credit Counselling (NFCC). “Though there will be a note in your credit report that says you’re enrolled in a debt management plan, it’s not something FICO uses when determining a credit score,” according to the NFCC.

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