Consolidating debt without ruining credit

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Some consolidation loans require you to secure the debt against your home.

However if you fall behind with these types of debts or can’t afford to repay them you will be at risk of house repossession.

Those debts are then shown as “Paid in Full” on your credit report with a zero balance.

Collateral is usually required in this form of loan, but not always. In a Debt Management Plan, a credit counselor assigned to you will negotiate with your creditors to help make your monthly payments manageable and more affordable.

There are several major methods to consolidate your debts, each with their own positives and negatives. In this form of consolidation you make one payment to a debt settlement firm that then distributes the amount among your creditors.

You don’t actually consolidate any of your debts; all you do is consolidate your payments into one cheque. Essentially, you go to a lender and take out one loan that pays all of your other debts in full.

While consolidating debt often sounds like a promising solution, this could make your situation worse.

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When people mention debt consolidation, they are usually referring to one of two different methods.

The first is the kind you describe, where you apply for a personal loan, preferably one with a relatively low interest rate, and then use the money from that loan to pay off all your credit card balances at once.

Both can lead to lowering payments but are completely different ways of dealing with debt.

If you're not sure which option suits your circumstances then we can help.

The balance transfer cards method will make your credit dip slightly, but will improve your credit utilization rate and in effect, your credit score.

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