Some people have a negative perspective about debt consolidation and they think this is something they need to avoid. However, the truth is that debt consolidation actually helps to improve your credit score. In reality, applying for a new loan to settle other loans adds to your credit history. But then again, the report shows that your previous loans were paid in full which adds points to your credit score. Now, you have to make sure that you pay the new loan on time and this will reflect positively on your report.

What Are The Facts About Loan Consolidation?

Debt consolidation is a program provided b credit companies to help borrowers apply for a new loan to pay off the sum of other debts they have. Some people find it hard to manage their loan repayments especially if there are several of them. Debt consolidation allows a borrower to manage his or her debt by rolling it into one monthly payment. The new loan applied carries a lower interest than all the other debts combined. Before you apply for a debt consolidation program, a credit company will consider your credit history to determine your level risk on a loan. Business owners have a chance to apply for a reverse Consolidation program which offers them the perfect solution from making daily payments of multiple cash advances.

How Debt Consolidation Affects Your Credit Score

As mentioned earlier, debt consolidation has a positive impact on your credit score. Using debt consolidation shows credit agencies that you have paid off all other debts you had and this increases your chances of being considered for future loans if you wish to apply. Your credit score goes up and if you make full payments on your new credit accounts, this reflects positively on your credit history. When you apply for debt consolidation, it is highly recommended that you avoid taking up new credit card accounts. If you do, make sure that you are in a position to pay your bills promptly to avoid debt accumulation.

Benefits Of Debt Consolidation

The main benefit of debt consolidation is making one monthly payment. The simplicity that comes with single payments is enticing to borrowers who have debt issues. If one has several loans to pay each month, you will find that they have to pay interest on each loan. The sum total of interest one has to pay for each loan is very high. Debt consolidation gives a borrower a chance to pay lower rates than his or her other debts combined.


Before applying for a debt consolidation program, you need to be fully committed to it. Making late payments or missing payments on your debt consolidation loan will have a negative effect on your credit score. You can take measures to close other credit accounts in order to repay your debt consolidation loan without too much pressure. However, note that when you close credit card accounts, this lowers the amount of available credit. If you have to close some of your credit accounts, choose those that were recently opened. Older accounts reflect more on your credit history.

If you are on the market for the right debt consolidation company, ensure that you compare and contrast multiple companies before making your final decision. Different credit companies offer different rates and you want to find a company that will offer the lowest interest rate possible.