There are always pros and cons to every situation. Debt consolidation is no different. The great thing about it is that it allows you to condense your unsecured debt into one fixed rate loan. The downside is that you cannot encompass all your debt into it. Your secured debt is still your responsibility to take care of. Here we will let you know how consolidating your debt can help and also harm your credit score. Taking a look at where your score is currently and where you want it to be in the future will help you a lot when deciding what path to commit to.


Advantages debt consolidation has on your credit

A benefit of debt consolidation is the high probability that it will help increase your credit score. By using a consolidation, or personal, loan to pay off your unsecured debts you owe to creditors it lowers your credit utilization ratio. This is the amount you currently owe, divided by your credit limit. Credit experts advise you to try to keep your credit utilization rate at around 30% or below. This will help you better maintain good and excellent credit scores.

Adding a personal loan to your credit portfolio can also really benefit your credit mix. Your credit mix refers to the different types of credit you have on your credit report. By diversifying your credit mix, it can increase your score. The credit mix makes up 10% of your FICO score and it includes your secured and unsecured debt. A debt consolidation loan will only encompass unsecured debt but it can condense a lot of your open accounts into one, making them more manageable.

If your credit score is currently good enough you will be able to qualify for an ARP credit card. This is a credit card that you can consolidate your unsecured debt onto and have a 0% interest rate for up to the first eighteen months. If you think you will be able to pay off your debt that soon this would be the perfect option. The sooner you get this debt out of the way, the faster your credit score will rise. If it may take you longer then eighteen months, be aware that once the introduction grace period is over the interest rate can raise to about 3 to 5 percent. If you aren’t able to afford the payments after that interest rate is applied, it could be very harmful to your credit score.


Disadvantages debt consolidation has on your score

One of the negatives to adding a consolidation or personal loan to your credit report is that it will give you a hard inquiry on your credit report. This will make your credit score dip slightly but as long as you keep up with your payments, this will fall off usually within a few months. It is important to note that if you miss even one payment after taking out a personal loan to consolidate your debt it can cause some serious damage to your credit score. Be sure that you are going to be able to afford the monthly payments before you finalize your debt consolidation.  

 If your credit is already really low and you think you may struggle to pay a loan you have just consolidated, this may not be the option for you. If you are really deep into debt, considering bankruptcy might be a better way to salvage your credit score. This sounds counterproductive because everyone knows that bankruptcy lowers your score, but once the debt is resolved you will have an easier time bringing it back up. There is no sense in continuing to fight an uphill battle that isn’t budging.


Trying your best to stay disciplined and not be tempted to add new balances to the credit cards or other debt you have just paid off with debt consolidation can be difficult. By falling into old habits you can be led down a slippery slope and you could end up right back where you started. Be sure to practice good money management skills and stick to your budget, especially while you are in the process of paying off the consolidation loan. If you keep up with the good habits you have established, you will be well on your way to your best credit score possible.

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