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Debt Relief – Insolvency – Bankruptcy Information » Debt Consolidation and Refinancing » Does debt consolidation hurt your credit?

Does debt consolidation hurt your credit?

My husband and I have been thinking about trying debt consolidation but we want to be able to purchase a house as soon as all the debt is paid. Will it hurt our credit score so we couldn’t purchase a house? Does it affect credit scores at all?

Someone said to just add our debt to our mortgage. How does that work? Your thoughts please.

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5 Responses to "Does debt consolidation hurt your credit?"

  1. Kelise says:
    Debt consolidation wont hurt your credit. You have research the different companies that are out there because some dont wont.

    Consolidating your credit is a good thing and your score should go up.

  2. pussycatt says:
    consolidation should be your last resort, it’s a false promise. if you are struggling to pay your debts then approaching your creditors to negotiate should be your first step. if you just want to consolidate for convenience then DONT. It’ll take you longer and cost you more in the long run. it shouldn’t affect your credit rating as consolidation is just more, expensive credit. If you have the capability to save for your house deposit and moving fees, then perhaps the best option for you is to buy the house but include your credit debts in the mortgage. it’s the cheapest way to borrow in the short term. but beware of using this method over and over. I work with someone who is sixty next year and has just upped his mortgage for the fourth time. he cant retire for another twenty years!!!!
  3. Kelly W says:
    It can. First of all be sure you don’t go through one of those credit counseling services if your goal is to buy a house, that can really lower your score, some even compare that to bankruptcy b/c your essentially telling creditors that you can’t handle it on your own. By applying for a debt consolidation loan you could actually lose a few points on your score. All your really doing is shifting the amounts you owe. Your best bet is to: 1. Make sure you ALWAYS pay on time. Most mortgage lenders like at least one to two years of on time payments. 2. Try and get your debts paid down by 50% – so if your credit limit is 2,000 try and get it paid down to under a 1,000.
    all in all it shouldn’t hurt you that bad, but it’s somewhat better to pay those little ones down instead. Once you do get them paid down, be sure you don’t close that account. That too will make your score drop (b/c your increasing your balance to limit ratio).
    One more thing, all your debts don’t have to be paid off in order for you to get a house.
    Interest rates are great right now! Best of luck and b4 you know it, you’ll be unpacking in your new house.

    To answer your next question: It works by you borrowing more than your house is worth. Let’s say you want to buy a house that cost 100,000 and the market value of that house is 120,000. Well then you now have 20,000 to use towards your debts. The bad thing is, if the market value goes down, then you owe more than your house is worth. Sometimes they will do an 80/20 loan and the second loan (20%) can be a home equity line of credit (HELOC) or a home equity loan. The HEL you pay back and can’t use again. The HELOC you can continue to use over and over. I do advise against this however. You are much better off paying down your debts on your own. Your homes equity could be your largest asset some day.

  4. Dog Rescuer says:
    Consolidation is good when it combines all your high interest credit cards into one low interest payment..
    Then you can concentrate on one bill each month you can double up the payments and pay it off in half the time…Which builds better credit….

    DO NOT let anyone talk you into putting your bills on a mortgage.ITS a trap!!!
    This kind of mortgage traps you into a horrible higher interest rate as well you are stuck with a CASH OUT ONLY option if you ever need to refinance your home for any reason ll

    Good Luck….

  5. Debt Guru says:
    Debt Consolidation Help comes in many forms, from payment plans to loans to resolution strategies, so it is important that you spend some time prioritizing your own personal finance needs, concerns and financial situation before signing up for any debt consolidation help program.

    The four primary concerns for most consumers are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) credit rating impact of the debt consolidation program. Be sure to evaluate each program, relative to your prioritization of these factors.

    Since there are a variety of debt consolidation options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, and other debt resolution options, it is important to fully understand each option and then pick the solution that is right for you. I will walk you through each, in turn.

    Credit Counseling
    Credit counseling, or signing up for a debt management plan (“DMP”), is a very common form of debt consolidation. There are many companies offering online credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts – but with lower monthly payments. On average, most online credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report… and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy – or using a third party to re-organize your debts. This is typically a good form of debt consolidation help if you have lots of high interest credit card debt and just want a lower monthly payment.

    Debt Settlement and Debt Negotiation
    Debt settlement, also called debt negotiation, is a newer form of debt consolidation help that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years – so they are a short programs with low monthly payments that can save you the most money while avoiding bankruptcy.

    It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Bankruptcy. The trade-off here is a negative credit rating versus saving money.

    Debt Consolidation Loan
    Many people think first of a debt consolidation loan when seeking debt consolidation help. Usually, this is reserved for home owners with equity in their homes that can be tapped to payoff other debts. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one or more loans for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.

    It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high… but the monthly payment will be lower than other options and there is no credit rating impact.

    Net-net: While there are many forms of debt consolidation help, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation help program and option that fits for you.

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