Like debt settlement, free credit card consolidation does not hurt your credit score as such. If you are making payments consolidation, it rather helps you to improve your credit. Debt consolidation is a viable option for those who are into a financial problem for the time being as it lowers the interest rate on your credit cards. There are however, various ways in which you can do it.
Debt consolidation – What happens to your debt?
When you opt to consolidate your credit cards, you either opt to do balance transfer or you take out a consolidation loan in order to pay off your credit card debts. You can also take the help of a debt consolidation company, who will help you pay off your credit card debts through consolidation.
In all the types, what ultimately happens in that all of your debts are grouped together to form a large debt with lowered interest rate. However, before you can either take out a consolidation loan or do balance transfer, you will have to talk to your creditors about your financial problem and that you need to consolidate your debts.
If you go to a debt consolidation company, they will first check with your debt obligations, and help you prepare a budget. Then, they will negotiate with your creditors and lower the interest rate on your debts.
Debt consolidation – What happens to your credit?
Credit card debt consolidation does not have a negative effect on your credit. Actually, it depends on how you are handling your accounts. For example, if you opt for balance transfer, all off the balances from the high interest credit cards are transferred to a low interest credit card or to a new credit card offering 0% on balance transfer. If you close down the accounts from which you have transferred the balances, it may lower the credit score. This can happen because as you close down the accounts, the available credit limit gets lowered in comparison to your credit usage. Other than this, the history of the accounts is lost too after some time from your credit reports. So it is better to avoid closing down all of your accounts at the same time. Even if you close a couple of accounts, try closing those which don’t have a long payment history or are relatively the new ones. In addition, you should also make sure that the closed accounts get listed on your credit report as closed by the debtor with zero balance.
However, even if you close down your accounts, with time the credit score improves as you make the payments. The payment history accounts for 35% of your credit score. So, i8f you want to maintain a good credit score despite your closed accounts, you will have to try and maintain on-time payments.
