Does Debt Consolidation Hurt Your Credit?

Does Debt Consolidation Hurt Your Credit?

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By Bromwich+Smith Staff | 485 words | Reading Time: 2 minutes and 50 Seconds | Date: 2022/04/12

What is debt consolidation? Debt consolidation means taking out one big loan that enables you to repay all your debts to your creditors at once.  With this new large loan you should have a much lower interest rate that will save you quite a bit over the term of your loan. Debt consolidation can be a very good solution to getting you out of an overwhelming debt situation. 

The pros of debt consolidation:

Debt consolidation can have many benefits. 

  • You can use your assets (such as a home) to secure a lower interest rate.
  • You protect your credit rating.
  • Your creditors will be promptly paid in full by the bank.
  • You will only have to make one monthly payment to your financial institution, instead of a bunch of different payments to different lenders.
  • You will pay less of your money to interest, getting you out of debt faster.
  • As long as you follow the terms of your consolidation loan and make your payments on time, your credit rating should not be negatively affected.

The biggest benefit to you is paying less interest vs. paying high-interest rates that can turn small loans into large debts over time.

The cons of debt consolidation:

Debt consolidation does have its risks though. 

  • If you still have access to your credit cards, you may be tempted to use them and go further in debt.
  • Prompt payments are expected and if you were struggling previously to pay your debts this may still be a challenge to repay the new consolidation loan.  
  • Some people use a co-signer to get a consolidation loan. If you can’t make your payments, your co-signer will be left with your debt.
  • People often use their houses as collateral. If you can’t make the payments, you’ll risk losing your home.

How Will a Debt Consolidation Loan Impact My Credit?

If you decide that a debt consolidation loan is right for you, when you apply, there are several elements that can affect your credit as follows: 

  1. When applying for any loan, the lender will do a “hard inquiry” on your credit so they can check your credit score and credit rating to assess risk. This can lower your credit score a little in the short term. If you check with a lot of lenders to get a debt consolidation loan in a short period of time, this could noticeably reduce your credit score.
  2. If you obtain a debt consolidation loan, it will appear as a new line item on your credit report. Any “new” credit item could potentially lower your credit temporarily because it poses new risk. But the good news is that other debts on your credit report are paid off by the debt consolidation loan and this will be updated, slowly improving your credit rating.
  3. The rate of how much credit you’re using versus the amount of credit available to you may improve when you have a debt consolidation loan because the loan pays off all your debts. 


A major part of your credit score is your history of payments on your debts. With a debt consolidation loan, making a single monthly payment that goes towards all your unsecured debt (and building a strong history of payments) is easier than making a dozen different payments to a dozen different creditors and lenders. As long as you’re consistent with your payments, you can, over time, build a positive payment history and improve your credit.

If you are facing overwhelming debt, remember that you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!

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