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Credit is one of the most important assets a person can have. Whether you’re planning to apply for a mortgage, car loan, credit card, or any other type of financing—the better your credit is, the better your options and loan terms are likely to be. When it comes to debt consolidation, does it hurt your credit? We have the answer to that question and more!

What Is Debt Consolidation?

Before discussing the impact debt consolidation can have on your credit score, it is important to understand what debt consolidation actually does. Debt consolidation is when a variety of your debts get packaged together under a single loan and are paid off in monthly payments. One benefit here is that it can help streamline your monthly payments by allowing you to make a single loan payment each month instead of multiple payments to various creditors. Another benefit is the new loan that these debts are packaged into can typically carry a lower interest rate than your current debts, like credit cards.

Pros of Debt Consolidation

Simplify Your Life

Debt consolidation can allow you to take multiple existing debts and combine them into one new loan. When you put all of your debts into one loan, you then only have one payment date to worry about. This means only one creditor to deal with versus multiple. This can also help simplify tracking your monthly expenses as your budget does not have to include payments for multiple accounts.

Lower Interest Rates

If you have a good credit score, it’s possible that you could qualify for a debt consolidation loan that carries a lower interest rate than what you’re currently paying on your credit card debt. The average credit card rate is around 18%, while the rate for a debt consolidation loan can be as low as 11%. The overall financing terms will be very dependent on your credit score and history.

Consistent Monthly Payments

When you have debt with multiple creditors, the terms for each debt are different. This means that the amount you owe each month might be different based on the terms that a creditor has. When you consolidate your debts, the terms for all of your outstanding debt are the same so you can know what to expect when it comes to your monthly payments. Being able to predict this expense each month could help make it easier to plan and track a budget.

Cons of Debt Consolidation

Can Be Difficult to Qualify For

Debt consolidation loans can be difficult to qualify for. Generally, these lenders will utilize credit scores to determine if you are eligible for this type of loan and what your financing terms are. So, if you don’t have great credit you might not qualify for a debt consolidation loan or might not qualify for a loan that covers all of your debt—which means you would need to find a way to deal with the uncovered portion of your debt.

Can Take Time

Debt consolidation loans typically take around 3–5 years for you to resolve your debt. If becoming debt-free quickly is important to you, there are other debt-relief options, like debt settlement, that could help you resolve debt in less time. Read more about the best debt relief programs in this article.

Doesn’t Reduce What You Owe

When you take out a debt consolidation loan, you are simply reorganizing your existing debts into a single place—you are not reducing the amount you owe. In fact, you’ll likely have to pay additional fees with debt consolidation loans that will add onto your overall debt. While there are advantages to only having one payment to worry about, one of the biggest ways to impact how long it will take to get out of debt is to negotiate with creditors to pay less. With a debt-relief option like debt settlement, a professional company will negotiate with creditors to settle your debts for less than the full amount you owe. 

How is Your Credit Score Calculated?

Credit scores are typically made up of five factors: payment history, how much you owe, the length of your credit history, types of accounts you have, and recent credit activity. Payment history and the amount you owe are the biggest factors as they account for 65% of your overall score. As such, reducing your debt is a great way to help boost your score.

How Debt Consolidation Can Affect Your Credit?

Debt consolidation, the process of taking out one loan to pay off multiple debt accounts, can temporarily cause a drop in your credit score. This is because the new hard inquiry from the loans may quickly lower your credit score by a few points. The biggest potential impact comes if you are unable to make your payments on time — this will cause significant harm to your credit score.

What Are Alternatives to Debt Consolidation? 

If you’re considering debt consolidation as a debt-relief option, it’s important to make sure you review all your options before making a decision. 

Debt Settlement

Debt settlement has become increasingly popular because it allows you to resolve delinquent debt for a fraction of the original amount, potentially by up to half, or more. Debt settlement could also help you pay off your debt more quickly and for less money than your original loan amount, which makes it a good option for people who are struggling to pay the full amount they owe. Read more about how debt settlement can strengthen your finances in this article.

Credit Counseling

Credit counseling is when you work with a counselor who will find out if you can qualify for a Debt Management Plan. If you are able to qualify for this type of plan, a credit counselor can negotiate lower interest rates with your creditors and help you create a plan to get you out of debt. Despite these positives, there is the risk that using a debt management plan will result in you being viewed as a credit risk if you look for financing in the future. Read more about credit counseling and how to find it in this article.


Bankruptcy is often a last resort for people as they work to resolve their debt. This is because when you declare bankruptcy, you could be doing significant, long-lasting damage to your credit score and possibly struggle to qualify for any loans in the future. There are also additional fees with bankruptcy such as administrative fees and legal fees. Read more about bankruptcy in this article.

How Can CreditAssociates Help? 

At CreditAssociates we can help you get out of debt by negotiating with your creditors to help you become debt-free for less than what you owe. Our certified debt specialists can help get you started on the path to financial freedom with a FREE consultation. We want to help you find the right debt relief solution and we have the system in place to help you on this journey. Check out our free debt calculator to see how much we could help you save.

Common Questions about Debt Consolidation: 

How can I stay out of debt in the future? 

There are many strategies you can take to stay out of debt, but one simple thing you can do is to not spend more than you make. By doing this, you can prevent the need to consolidate debt in the future. If you need help getting on the right track, we recommend speaking with a certified debt specialist.

Can you get a better interest rate with debt consolidation? 

It is possible to get a better interest rate with debt consolidation, but it depends on your credit score. A better interest rate can help you pay less in the long run, but it doesn’t do anything to reduce the initial amount you owe. If you feel like you have too much debt to pay back, another debt relief option such as debt settlement might be a better option for you. Check out this calculator to see how much you could save with debt settlement vs. debt consolidation.

Can you still use your credit cards after consolidating debt?

While it is possible to use your credit cards after consolidating debt, it is not recommended. Using your credit cards after you’ve consolidated your debt can lead you into even greater debt that can cripple your financial future.

Why is debt consolidation a bad idea?

The main downside to debt consolidation when you compare it to other debt-relief options is that it doesn’t reduce the total amount that you owe, it simply restructures how your debt is set up. It does provide simplicity as you only have one payment to make, but an option like debt settlement will help you reduce the amount you owe. Debt consolidation loans can also be harder to qualify for.

What is the fee for debt consolidation?

Typically debt consolidation loans will charge an upfront origination fee of around 3–5% of your total balance. This is something that you will want to take into account when you are comparing your debt relief options. If becoming debt-free for less than you owe is important to you, debt settlement might be a good option for you. See how much you could save here.