Credit, Debt Relief, Timothy Kingcade Posts

Debt Consolidation: What will it do to my credit score?

Accumulating debt each month can be stressful and overwhelming.  As you research options to lower or eliminate your debt, consolidating credit cards or loans may seem like a good option.  But many wonder what effect this will have on their credit score.  It all depends on how you consolidate and what you do with your debt moving forward.

  • Debt Consolidation Loans. This is one of the most popular forms of consolidation. But finding a loan that has decent terms, when you have less than perfect credit can be challenging.  Double-check certifications to make sure that you are working with a legitimate consolidation company.  Scams are prevalent in the loan consolidation business.  Effect on Your Credit: Consolidating credit cards with high balances using an installment loan with fixed monthly payments may improve your credit rating for a period of time. But at the same time, any new loan can cause a short-term dip in your credit score.
  • Debt Management Plans (DMPs). These type plans are oftentimes confused with debt consolidation. DMPs are offered through credit counseling agencies.  You make a “consolidated” payment to the counseling agency, which then pays your creditors- usually at a reduced interest rate.  This option requires you to close or suspend your credit card accounts. Effect on Your Credit: If you have a good credit score and adhered to a creditor’s repayment terms in the past, a DMP could have a negative impact on your credit as it indicates that you are experiencing or have experienced difficulty with payments.
  • Credit Card Debt Transfer. Transferring high interest credit card debt to a card with a lower rate or 0% interest rate card is another way to consolidate.  However, it is important to always read the fine print.  Effect on Your Credit: It depends on how you use the transfer. You will often see a temporary dip in your credit score when opening a new card.  You may also lose points if you open a new card and use a majority of the credit line to consolidate.

Paying down debt can have a tremendous impact on your credit scores. The biggest risk, though, is that it is easy to run up new balances on the cards you paid off in the consolidation.  When paying down debt, periodically check your free credit report to see where you stand.

If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at

Related Resources: