GOBankingRates works with many financial advertisers to showcase their products and services to our audiences.
These brands compensate us to advertise their products in ads across our site.
This compensation may impact how and where products appear on this site.
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information.
you’ve got the option to read more about oureditorial guidelinesand our products and servicesreview methodology.
Do you pay off onecredit cardat a time?
Do you call to lower your interest rate?
You may want to consider debt consolidation.
But you might worry about how it impacts your financial future.
The question that comes to mind, Does debt consolidation hurt your credit?
What Is Debt Consolidation?
Debt consolidationis a financial strategy that you could use to combine multiple debts into one.
Many people are concerned about how debt consolidation may impact your credit score.
How Do Credit Scores Work?
A credit score measures your credit worthiness.
The range ofcredit scoresare from 300 to 850.
Lenders use credit scores as a metric to judge risk in lending money to you.
The higher the credit score, the more likely your loan or credit card utility will be approved.
The most commonly used credit score model is FICO.
Consolidating your debt can have short and long-term positive and negative impacts on your credit score.
There are several ways to consolidate your debt.
The benefit of this approach is you could have a single payment and potentially 0% APR.
There is predictability in a debt consolidation loan since youre dealing withfixed repayment terms.
Knowing that a certain amount is due every month makes budgeting easier.
Be aware that taking funds out of your retirement account could have consequences for your long-term financial future.
What Is the Difference Between Consolidation vs.
There are key differences between debt consolidation and using credit cards.
Heres a table to show the features and their differences.
What Are the Pros and Cons of Debt Consolidation?
Debt consolidation is a financial strategy that comes with its pros and cons.
Ultimately, you have to assess what works best for your situation.
Here are the pros:
Here are the cons:
What Is the Credit Utilization Ratio Impact?
Thecredit utilization ratiois the percentage of your current credit that youre using.
This percentage impacts your credit score.
This can improve your credit score.
How Important Are Timely Payments?
Timely payments are important for a debt consolidation loan.
She recommends three strategies.
First, do not focus solely on credit utilization.
Also, monitor the speed at which youre paying down debt.
Second, diversify your credit, Morrison says, while maintaining low utilization.
This can boost your scores by 15 to 20 points.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
Share This Article:
