Is a Debt Consolidation Loan Bad for Your Credit?

Many Americans with lots of debt thinking about consolidation, but worry taking a debt consolidation loan will be bad for their credit. You may be in a situation where you have numerous credit cards maxed out, a car loan, a student loan, and a mortgage. You may find that you are drowning in these payments and you are looking for a way to make everything easier to handle. 

The Answer is not "Cut and Dry"

Are you trying to secure a debt consolidation loan because you are behind on your payments? If your answer to this is yes then frankly finding a way that will make your debt easier to handle is naturally going to be a better option for your credit than allowing yourself to slip further and further behind in your payments.

If you are in the habit of securing a new credit card every few months then another loan on your credit may affect it negatively. Also if you are doing this on a regular basis then you will need to curb that habit when you consolidate your debt or you will simply continue to have the same problem. Consolidating your loans may give you a false sense of having more spending power; you can not allow yourself to fall back into that cycle.

By keeping your debt in several different payments you can work to knock them out one at a time. By eliminating the cards or loans this way you will help your credit rating every time you manage to eliminate another debt.

Keep in mind that a loan consolidation will most likely require collateral. Credit cards are unsecured and if you find yourself unable to pay the consolidation loan payments, then you will possibly lose that collateral, such as your home. Naturally this would cause a foreclosure to appear on your credit and certainly that is not good.

With a debt consolidation you will still have the same amount due, only now the amount will be due over a longer period of time. This extended period of payments will translate into this debt being on your credit report longer, which may affect your ability to secure additional credit in the future.

While securing a debt consolidation does not necessarily place an automatic strike against your credit report, it is your habits and the factors that relate to a credit consolidation that will ultimately determine whether a loan consolidation will affect your credit report in a negative manner.

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