Credit card consolidation loans are easy to explain. When you have debt running on more than one credit card it can be hard to keep track of. You can consolidate, or join, various loans together so you only have one loan to keep track of.
Will consolidating your credit card loans hurt your credit score and rating? Yes, and no. There are many advantages of consolidation, and there are a few drawbacks.
Consolidation offers you the chance to pay off your loan faster. If you have a low or fair credit score consolidation offers you a chance to save it. This can be important when you are planning to purchase a large item, such as a new car or home.
A drawback with consolidation is that the extra lines are reported as “closed lines” meaning they were not paid. This can hurt your credit a little. It might not effect your score, but there will be a negative association with it.
Consolidating loans helps when you are trying to pay off your loan. However, since you will be paying less than your original loan agreement it will be noted as being “settled for less than legal balance” when others look up your credit. You may not like the negative association that comes along with consolidation.
When someone looks in to your credit score this note will show up. Future creditors may be concerned with the settlement you did with your consolidation. While your credit score is not actually lower because of the consolidation, it does leave a negative association with it.
There are advantages and disadvantages to most everything. Consolidating your loan is no different. It is up to you to decide whether it is worth the risk of having a bad connotation with consolidating your loan, or if you would be okay with it since you will be paying less money every month.
In all respects, consolidation is better than declaring bankruptcy. With consolidation you are still able to salvage your credit. If you are in real trouble, credit card consolidation will help you immediately and continue to help you later on in the future.
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