For many people battling debt like credit card bills, medical bills and student loans, debt consolidation is an effective way to reduce monthly payments, lower interest costs and ultimately get debt-free faster.
Only having to make one monthly payment is also super convenient. When taking out a consolidation loan, you may see an initial dip in your credit score because applying for a loan generally results in a hard inquiry into your credit report.
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On the flip side, debt consolidation can majorly help your credit score.
You may be able to get a consolidation loan with an interest rate lower than what you’re paying across all your separate debts, which means more of your monthly payment will go toward your principal balance.
These types of loans come with fixed rates and fixed payments, along with a clear payback timeline.
Of course, the interest rate you get can be a deal breaker, so shopping around and comparing offers from multiple lenders is your best strategy.
Locking down the best rate typically means that your mortgage debt doesn’t exceed 85 percent of your home’s value.
Your debt-to-income ratio (DTI) also comes into play.
This way, getting a variety of quotes won’t show up on your credit report and indirectly impact your credit score.
You can find and compare loan offers on Lending Tree — we use a soft credit pull to search for loans that may suit you.
There are multiple options for debt consolidation (more on this in a bit), but if you stick to a well-thought-out payoff plan, a new lower-interest loan is a viable way to pay off high-interest balances in one shot. For example, one common question about the tactic is, “Does debt consolidation hurt your credit score? “The degree to which they have a negative impact depends on how many inquiries you have over a specific period of time,” says Bruce Mc Clary, spokesperson for the National Foundation for Credit Counseling.