Can Debt Consolidation Hurt Your Personal Credit?

Bad debt is one of the most difficult things to contend with. Most people turn to debt consolidation for help but others worry that by taking out a loan, they could be doing more damage to their credit history. But can debt consolidation really be bad for your personal credit? Should you skip consolidation and find other solutions?

Debt Consolidation And Your Credit Report

It is true that a debt consolidation loan will be reflected in your credit report. Initially, it can create a negative impression to future lenders. Seeing a consolidation loan in your report is not exactly very impressive since it proves that you’ve had problems with debt in the past. Your credit score will go down by a few points especially during the early phase of consolidation.

Obviously, this isn’t the time for you to try to apply for personal loans or credit cards. With a consolidation loan under your name, lenders would most likely be hesitant to extend you credit unless you go with a bad credit loan.

Nevertheless, it doesn’t mean that a debt consolidation will permanently be damaging for your personal credit.The advantage of consolidating debts is that you can have a breather and really focus on debt repayment. Since all your creditors have been paid off, you can avoid the additional interest rate fees that each of your creditors can impose on you. With just one interest rate to pay, you can significantly reduce your monthly payment.

Use Your Debt Consolidation Loan to Rebuild Bad Credit

The positive side about acquiring a debt consolidation loan is that you are given the opportunity to rebuild your damaged credit. As long as you can submit your monthly payments on schedule, you will slowly but surely improve your credit rating.

It is very important for someone under a loan consolidation program to put debt repayment as a top priority. This isn’t the time to think about replacing your old car for the latest model. This isn’t the time to start thinking about purchasing new gadgets charged to your credit card. To ensure that you will not be missing any payment from your loan, you should avoid incurring new debts which can add burden to your load.

Never forget that debt consolidation loan is a secured debt. By submitting your home or property to your lender, you are using it as guarantee for repayment. In case of default, you could lose your home to your debt consolidation company.

8 comments

  1. Having bad credit can be pretty frustrating. It takes a lot of time and effort to change bad credit to good credit, but it can be done! There are lots of bad credit loans available to consumers, but you just have to be aware of the interest rate and fees that they charge before you accept the loan.

  2. The Real Deal Debt Guide

    Very well written guide. It is difficult to find useful information now a days.

  3. Gordon's Credit Report

    You simply cannot prevent the dent on your credit report, you can only minimize the extent of the dent and debt consolidation can do that for you.

  4. Debt consolidation loans are a very viable option for many with high amounts of debt with high interest rates. A debt consolidation loan often has a much lower interest rate and therefore save the borrower money in the end. Plus it’s easier to pay one monthly payment rather than several.

  5. Loan Modification Researcher

    Many debt consolidation companies promise to pay off your entire unsecured loans in three years or less. These conditions of course depend on the total amount of your bills.

    [WORDPRESS HASHCASH] The poster sent us ‘0 which is not a hashcash value.

  6. What’s the use of debt consolidation if after this, you will just make the same mistake of spending too much for luxury all over again? Just bear in mind that eventhough everything has a solution, still, it doesn’t give you the liberty to repeat history over and over again. Learn from your mistakes and do things that will make you a better person. That’s the sole reason why solutions were made, to give you chance to repair your mistakes and never repeat them again.

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  7. I found this blog to be very relevent to the information i was looking for. Consolidation looks like i will be a last resort for me, i see that this could be a possible negative on my credit report. now i will think long and hard..

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