Loans
Debt Consolidation Loans
A debt consolidation loan (aka personal loan) is an unsecured debt that can be used to pay off existing balances and consequently, consolidate your debt into one monthly payment. Rather than making payments to multiple accounts, you’ll make one payment each month to your debt consolidation loan.
Check out our reviews for the top personal or business debt consolidation loans.
Debt Consolidation vs Personal Loan
What many people don’t know is that debt consolidation loans and personal loans are essentially the same. When you apply for a personal loan, you’re applying for unsecured debt. That loan can be used for nearly anything: debt payoff, car purchase, vacation, etc.
Do Debt Consolidation Loans Hurt Your Credit?
When you apply for a loan, the lender will do a hard credit pull, which will hurt your credit score. The amount your credit score is affected is based on the length of your credit history, credit utilization, number of other hard pulls, etc. On average, your score will drop 5-10 points and will start to come back after about 3 months.
A debt consolidation loan on its own does not hurt your credit score. If you make your payments on time and keep the account in good standing, your credit score will actually benefit from the account.
The act of consolidating your debt, on the other hand, might affect your credit negatively. When you use the loan to pay off your other debts, your credit score might temporarily decrease. If you close your account after paying them off, your credit history/age and credit mix will be reduced.
Basically, you’ll go from having multiple types of debt to only one type – an unsecured loan. Additionally, if some of your accounts had been open for years, your credit age will appear to be much less mature when it only consists of a brand new unsecured debt consolidation loan.
How do Debt Consolidation Loans Work?
Compare loans options in just a few minutes.
Check out our rankings for the top debt consolidation companies, which include options for debt consolidation/personal loans.
Pay off your existing debt using your new loan.
If you’re not sure which debts to pay off or what to do with the accounts, talk to a financial coach.
Make monthly, on-time payments on your new loan.
To reduce the impact on your credit and keep your finances in good shape, make sure not to miss any payments.
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