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Home / Debt / Debt Consolidation Loans That Won’t Hurt Your Credit: 3 Keys


Getting a debt consolidation loan can be daunting. It can be even more daunting trying to decide what to do in the aftermath of the loan, so that the loan positively affects your credit over the long term. Below we will discuss a few of the financial moves that you may want to avoid and a possible alternative to each.

Closing All Of Your Credit Card Accounts

Knowing that credit card debt is what may have gotten you into trouble to begin with, it may be tempting to pay the debt off with your loan proceeds, then close all of the accounts. That will lower your credit score by tens if not hundreds of points. Why? FICO and other agencies build your credit score with multiple factors in mind. Credit utilization accounts for thirty percent of your score. Closing accounts will show that you have no limits to utilize, so no points will be added for this aspect. Fifteen percent of your score is built on the length of your credit history. Closing accounts will shorten that history. It can also affect the types of credit you use, accounting for another ten percent of your score.

Of course, if you have not changed your habit of using your card, you will want to get rid of it. Why not just cut it up? You won’t be able to use it and your score will still benefit from having the accounts open.

Do Not Add New Debt

Many people have a sense of being payment poor after a debt consolidation loan. This sense of being broke can lead you to use your credit cards or look for other loans. All that will do is lead to debt so overwhelming that you are forced into bankruptcy and years of a low credit score.

Your best option is to find a support system to help you avoid debt. A family member who is not judgmental, but willing to tell you no is great, if you are willing to listen to them. There are organizations that are similar to AA, but work exclusively with debt-a-holics. Do not be afraid to ask for help when you need it.

Do Not Miss Payments

What ever you do, do not start missing payments. Any creditor who is willing to offer you a debt consolidation loan is going to report that loan to the major credit agencies. Missed payments will result in a lower credit score and a possible wage garnishment. Set up automatic payments if you are worried that you may miss a payment accidentally. Some lenders even offer a small interest rate discount for doing so.

A debt consolidation loan is a great way to cut the number of payments that you have and possibly lower the amount you pay out each month.  If you need the loan because of overwhelming credit card debt, the loan will only work if you have conquered the urges that brought you to request the loan in the first place. We would love to hear your success stories or any additional suggestions that you might have, so hit us up in the comments section.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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