Does a Debt Consolidation Program Lower My Credit Score?

“Dear Steve,

I need to consolidate credit card debt of $9,000.00.

Does debt consolidation go against my credit rating, or lower my score? Do I have to close out my credit cards with my creditors to go forth with the program?


Dear Phyllis,

The term debt consolidation encompasses so many options that it’s hard to tell exactly what you are considering.

In general, here is how the different approaches impact your credit score:

  • Credit Counseling – Accounts closed and benefit of credit history lost. Your score will initially drop.
  • Debt Settlement – Since you’d already be delinquent before settling the debt, your score would drop.
  • Bankruptcy – A chapter 7 bankruptcy will probably drop your score initially but you can get right back to rebuilding it after 90 days or so. In a chapter 13 bankruptcy you’d have to wait till the end of the plan.
  • Debt Consolidation Loan – Can help to improve your credit score since the old accounts do not need to be closed and your on time payments to the debt consolidation lender will be reported to the credit bureaus.

Mature woman confusedAs you can see, there are many ways people think they can “consolidate debt.” The best approach for your situation would really depend on your current financial condition, the goals you want to achieve, and your current credit score.

If you want to know more about a true debt consolidation loan, read The Ultimate Debt Consolidation Loan Guide: Getting Approved, Acting Smart, and Being Wise.

Please post your responses and follow-up messages to me on this in the comments section below.


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Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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