Can Debt Consolidation Loans Hurt Your Credit Score?

Debt Consolidation Loans

The vast majority of people have to deal with debt throughout their lives, and that debt can come in a variety of forms, including personal loans and credit cards. Having to manage all those different kinds of debt, keeping track of different monthly payment schedules and staying up to date with different interest rates, can be challenging.


This is why a lot of people turn to debt consolidation. Effectively, debt consolidation works by combining all of your credit cards and low-interest loan debts together, giving you a new loan with a favorable interest rate and just one monthly payment to worry about. As well as credit cards, the following types of loans and credit can be consolidated:


  1. Student loans
  2. Medical loans
  3. Personal loans
  4. Retail credit


Do debt consolidation loans harm your credit score? What kind of effects can they have on your credit score over time? Will debt consolidation loans make it harder to get other loans in the future? There are all valid questions and it’s certainly wise to think about all the ins and outs of consolidation before actually going ahead with it.


Debt Consolidation Loans


Typically used by people with multiple credit cards and personal loans, debt consolidation loans can be really useful to help you pay off your debts easily and simply each month. Let’s take a look at the pros and cons to see how these loans can appeal and what kind of downsides they also have.




  1. Simplicity – Debt consolidation loans give you one monthly payment instead of several. This makes everything a lot easier and simpler overall and can give you better control over your finances.

  3. Time-Saving – Having only one monthly payment to contend with can also save you a lot of time that would have been spent logging into multiple credit card or loan accounts to make your different payments.

  5. Money-Saving – With a good debt consolidation loan, you can actually get better terms and a lower interest rate, so this can actually be a great way to save money in the long run.




  1. Reality – It’s important to remember that when you use a debt consolidation loan service, your debt doesn’t vanish. It’s still there and still needs to be paid off just like normal.

  3. Duration – Paying off all your debts in one loan can actually take longer in some cases than it would if you paid off the lines of credit and loans individually, so you need to be prepared for a big time commitment.

  5. Rates – Some debt consolidation loan providers won’t offer you the best rates and terms, and you could end up paying more than you needed. This is why research is vital to find the right lender.


So, we can see that debt consolidation loans come with both pros and cons to consider, but how do these loans actually affect your credit score?


Debt Consolidation Loans and Your Credit Score


The first thing to note about debt consolidation loans and your credit score is that the effect these loans will have on your score will vary from one person to the next. It really is a case by case matter, and this is why it’s important to speak to the experts and credit counsellors to get the full overview of your debt situation. However, in general, you can expect to see a small dip in your credit score at first. The very process of applying for a debt consolidation loan can trigger a little drop in a credit score.


However, over time, debt consolidation loans can actually improve your credit score. Let’s not forget that the whole purpose of a debt consolidation loan is to make your payments and debts easier to manage. By taking out this loan, you should be finding it easier to make payments on time each month. By paying off your debt in this way, your credit score will start to rise.


Then, once you actually get to the end of the payment period and are able to fully pay off your debts, your credit score can see a huge boost from the various loans and credit cards you’ve successfully been able to pay off. In short, getting and successfully paying a debt consolidation loan can have a great effect on your credit score in the long run, but do expect a small dip at first. Of course, you can also expect the score to decrease if you fail to make payments on time, just like with any other debt.

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Khadija Bilal

Khadija holds a bachelor's degree in business administration. She is a professional writer with 7+ years' experience in the industry. Khadija has a small family and loves spending time with them.