How to Consolidate Debt Without Ruining Credit

How to Consolidate Debt Without Ruining Credit
••• debt defined image by Christopher Walker from

Through the use of a debt consolidation loan, a borrower can consolidate all of his debt into one loan with a smaller monthly payment. Due to the fact that all of the previous debt will be paid in full, the borrower's credit score should actually rise through the use of the debt consolidation loan, provided he pays off the consolidated debt faithfully and on time.

Contact a local bank or credit union to appy for a debt consolidation loan. If you are not a member of a credit union, most will allow you to become one by setting up a small checking account.

Ask your lender to provide rates for you on a debt consolidation loan versus a cash out mortgage so that you can compare and choose between the two. The interest rate for the cash out mortgage may be cheaper than the debt consolidation loan, however, this is depending on your credit score.

Give your lender a copy of each debt's monthly statement that includes the balance owed as well as the creditor's contact information. Include this with an application for either a straight debt consolidation loan or a cash out mortgage refinance.

Allow the lender to check your credit and process your application. Once complete, sign all the applicable closing paperwork to create one loan with a smaller monthly payment.

Pay off the previous debts with the money from the consolidation loan. You may want to close some accounts after you pay them off. If you do, have the creditors report to the credit bureaus that the accounts were "closed at customer request" so that it doesn't look like the creditors closed your accounts and thus damage your credit.

Avoid taking on additional debt, especially by charging up credit cards that you just paid off.

Begin making payments on your new consolidated loan. Make the payments on time each month until you pay off the loan. Any late payments will damage your credit score. However, if you can pay off the loan early, that can improve your credit score.


  • To repay your debt faster and reduce your overall interest expense, consider paying extra on your monthly payment each month. The more paid towards the principle, the smaller the accrued interest each month.


  • You may or may not qualify for a large enough loan to cover all of your outstanding debts. If this is the case, try to consolidate the highest interest rate debt first and then continue to pay on the lower interest rate debt as it stands.