Living with many debts is as same as living in torture. Therefore, some solutions are provided, but choosing a reckless solution on solving the debts sometimes could damage the credit. For that reason, many people are facing dilemmas between finishing the debts and protecting their credit scores. One well-known solution on debts is debt consolidation. Facing the same irony, many people question ‘does debt consolidation hurt your credit?’ Honestly, there is no such definite answer of the question. The answer depends on how you use the debt consolidation and what you do next. To see whether it hurts or not, it will be better to understand about debt consolidation first.
How Debt Consolidation Works and Impacts the Credit
Debt consolidation is a way to pay off some debts by opening a big new loan to pay all the previous debts. It mostly comes from a debt management and debt consolidation plan. Debt consolidation is suitable for those who want to lower the total interest by making one payment every month through one new loan.
Taking the debt consolidation means adding one more loan to the credit history. In a quick, it does hurt the credit score because of the new opening loan. Again, the question of ‘does debt consolidation hurt your credit’ arises. In a quick too, the answer is yes it does, but in long term it can change and depends on the later act of the user of consolidation.
For example, it remains ‘hurtful’, if the consolidation user closes the debts in sudden or even before they are paid off. It hurts because when all the balance from the paid debt accounts is transferred into a single card, so the accounts reach credit limit. The closing of account surely injures the credit. Moreover, the injuries also apply to ones who misused credit cards which have new free credit limits by making other bigger debts.
To solve the misused credit cards, closing the debts or credit cards can help. Even the act will hurt for a while. However, the credit can recover quicker by paying the consolidation loan on time and consistently. There is nothing better than being free from debts. Save up your money and get ready to finish the one loan. Another option is to not close the debts that have been paid by the consolidation loan. It might hurt but later the revolving debt will nourish the credit score. Until here, will you still ask about ‘does debt consolidation hurt your credit?’
In taking an option, people must fuel up themselves by sufficient information. The debt relief companies may result you in a lower interests or balances by negotiating the creditors. The obligations, terms of agreement and others are reported to credit bureaus by debt relief companies. The previous creditor could report a charge-off that will harm the credit when the balances are lowered.
Those are the complete answer of ‘does debt consolidation hurt your credit’. By reading this, make sure you have calculated all your balance and surveyed some debt relief companies. Just remember one reckless step will end you in an unpleasant answer.