How Debt Consolidation Can Hurt Your Credit Score

June 30, 2009 by  Filed under: Debt 

There is no doubt that getting out of debt is difficult. A common method to help consumers get out of debt is credit card debt consolidation. But in many ways it can be a trap and could hurt your credit score.
 
First, before you consider credit card debt consolidation, you must know it has a low success rate. The failure rate is based on the actions of consumers after consolidating. They actually think they are making progress towards getting out of debt. In truth, they have only moved the money from one account to the next. They then believe it is OK to then spend again. In truth that is the worse thing they could do as this will put them in even deeper debt. As they continue to add back the debt the closer they come to their limit hurting their credit score. 
 
Second, since your credit score looks at your debt to credit ratio, credit card debt consolidation will cause it to rise.   Not overall, but for the specific account that holds all the debt. Anytime you are near your limit with any account, your credit score is going to feel it.
 
So should you go through with it? The answer is based on your commitment to getting out of debt. If this is the only way you think you can get by each month because it lowers your overall monthly payment; it is definitely worth a look. But if you think you are making progress, you have just been warned. You need to truly commit to paying off this loan and actually take the money you saved from consolidating and reapply it to this new loan. If you do this, you will make a serious debt in your overall debt. 

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