You can consolidate credit card debt without hurting your credit by being mindful of your credit utilization and waiting until you have an offer before allowing a lender to do a hard credit inquiry.
I think I speak for all humans every where (except for bankers) when I say, credit card debt is the absolute worst. Its high interest makes it nearly impossible to pay off when you simply stick to your minimum payments. It’s also easy to get slapped with late and annual fees. And it’s easy to fall in the trap of accruing more and more credit card debt which can obviously harm your credit score.
Consolidating credit card debt can be a great way to save money on interest which will allow you to pay it off even faster. It also makes it so that you have one payment to make, rather than making multiple payments to multiple credit card companies which simplifies the process. And it makes it less likely that you’ll miss a payment when you only have one payment to worry about– which helps you avoid missed payments and late fees.
That said, there are certain precautions you should take when you want to consolidate credit card debt without hurting your credit.
HOW TO CONSOLIDATE CREDIT CARD DEBT WITHOUT HURTING YOUR CREDIT:
GET OFFERS FROM MULTIPLE LENDERS BEFORE A HARD CREDIT CHECK.
The most important thing you can do to consolidate credit card debt without hurting your credit is to get loan offers from multiple lenders before allowing them to do a hard credit inquiry. When you get close to closing on your consolidation loan, your lender will perform a hard credit inquiry. This can lower your credit score by as much as 10 points for as long as one year. You can see how quickly this could damage your credit if you allow multiple lenders to do a hard credit check when you are seeking to consolidate your debt.
Rather than that, you can use a company like Credible, which does a soft inquiry and allows you to see multiple interest rates and offers from multiple lenders before you commit to a lender.
KEEP DEBT ACCOUNTS OPEN WHEN YOU CONSOLIDATE CREDIT CARD DEBT TO AVOID HURTING YOUR CREDIT.
The second thing you should do to consolidate credit card debt without hurting your credit is to make sure you keep your credit card accounts open after you’ve paid off the balance of your cards. Closing credit card accounts can harm your score because it changes your credit utilization ratio. Your credit utilization ratio is determined by how much credit is available to you. Meaning, the more credit that is currently available to you, that you don’t have a balance on, the better. So keeping those cards open, but NOT having a balance on them, is key. If you think you’ll slip into old spending habits, lock your cards away. Or if you want to continue using them and are confident you can pay them off, make payments on them each week so you don’t get in over your head again.
DOES DEBT CONSOLIDATING AFFECT YOUR CREDIT RATING?
Debt consolidating can affect your credit rating if you close off your debt accounts when you consolidate or if you allow hard credit inquiries to be performed from multiple lenders. As long as you are careful not to close your accounts (and not use them so you don’t wind up in debt again) and compare interest rates from multiple lenders with a company that performs only soft credit checks, debt consolidating doesn’t affect your credit rating.
IS IT BETTER TO CONSOLIDATE CREDIT CARD DEBT ONTO ONE CREDIT CARD?
It’s not necessarily better to consolidate credit card debt onto one credit card. It depends on what you are trying to accomplish. If you are looking to lower your interest rate or to have only one credit card payment, a credit card balance transfer may be a good option for you. That would consolidate your credit card debt onto one balance. Just be sure not to close your other credit accounts so you don’t impact your credit utilization ratio– which is a key factor in determining your credit score.
HOW CAN I GET ALL DEBT INTO ONE PAYMENT?
You can get most of your debt onto one payment by taking on a debt consolidation loan. In this case, you’ll take on a personal loan to pay off the balance(s) of your debt. How you do this will depend on what kind of debt you have and what kind you are interested in consolidating. Most people who take on personal loans to pay off debt pay off credit card debt because the interest rate on their personal loan will likely be far less than their credit card balance. But that’s not necessarily true for other debt, like student loans, auto loans, and mortgages. You can probably get better interest rates by simply refinancing your student loans or refinancing your mortgage, rather than consolidating them with other debt.
WHAT HAPPENS WHEN I CONDOLIDATE MY CREDIT CARDS?
What happens when you consolidate your credit cards is that a new lender will give you an installment loan, rather than revolving debt. In other words, you’ll take out a lower interest loan to pay off the balances of all of your credit cards. Then, you’ll simply make one payment to your new lender. Unlike a credit card, this kind of debt is a loan, meaning, you won’t have a credit limit that you will continually be allowed to take on more debt. (Like an auto loan or student loans).
Related: What debt should I pay off first to raise my credit score?
If you’re trying to pay off debt, I highly recommend downloading the Paidback app (it’s free). You’ll be able to track all of your debt in one easy to see place, get custom AI recommendations on which debt to pay off first, you can text debt experts with your burning debt questions, and connect with other like minded people. Download it on iOS here.
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