This article is for informational purposes only and should not be construed as legal advice.
There are three types of debt consolidation, one of which hurts your credit.
- A debt consolidation loan is where you may take a free consolidation loan calculator and then apply for a loan, with the funds added to your bank account. You would then use those funds to pay off all your higher-interest credit card debt. In this option, your credit score could go up, but if you're living paycheck to paycheck, I doubt you would qualify due to credit utilization rates.
- Debt consolidation credit counseling is where you consolidate all of your accounts into one payment (not a loan), and the nonprofit credit counseling agency negotiates all the interest rates on your high-interest credit cards. Your credit score could go up in this option, but if you're interested, you may want to take this free credit counseling qualification estimator to see if you can qualify.
- A Debt consolidation program is where you fall behind on your debt, and then the debt consolidation company negotiates the balances for less. In this option, your credit score usually goes down because your banks generally won't deal with a company before your accounts go behind. If you've already gotten a quote, you may want to compare debt consolidation fees to see if you are getting the best rate.
Which should you choose?
Over the years, I have helped so many people understand their options. If your debt is current and not yet behind, then debt consolidation credit counseling could be a great option. If your accounts are behind and you want to clean up your credit, then a debt consolidation program may be helpful.
Please consider taking one of the free calculators above to give you more information about your options. The calculators are all 100% free, and not even an email address is required unless we can provide further analysis.
Thanks for reading!
-Ben
Yes
No