Will Debt Consolidation Help or Hurt Your Credit?

Hurt your credit

Lowering your total debt through consolidation is one of the best ways to achieve the goal of being debt-free.

However, when you are looking to consolidate your debt, it is important to review your options so that you don’t end up hurting your credit rating in the process. Credit ratings can be difficult to raise once they have been lowered, so picking a method that is suitable for your situation is important for your long-term finances.

3 Methods of Consolidating Debt

Consolidating debt with a personal loan


  • Can combine several payments into one
  • Can improve your credit score by lowering the overall credit limit you are using
  • Improves credit mix if credit cards are your primary source of credit
  • Lower credit rating needed for approval 


  • Late payments can damage your credit rating
  • High fees
  • Possibility of prepayment penalties
  • Can lead to more debt if the debt is relocated to your credit card

Using a personal loan to pay off your credit cards and then paying on the personal loan can be a good solution for those with low credit scores who want to consolidate their debt.

The downside of this option is the higher fees that come with a personal loan and the risks associated with not paying it. If you decide to continue using your card after paying it off, you will continue to accrue debt despite using a personal loan to consolidate credit.

On the flip side, you can significantly increase your credit rating with a personal loan as long as you can make the payments on time and discontinue use of the credit card once the loan is repaid. 

Consolidating debt with a balance transfer card


  • Lower interest rates
  • Payment options
  • No penalties for prepayment


  • Can lower your credit score
  • Requires good credit

A balance transfer card is a promotional card with little to no interest on it for a set period of time—usually 12 to 18 months. You can use this card to consolidate all of your credit card debt onto one card that you can then repay.

The low interest rate gives you more opportunity to pay off the balance before higher interest rates start to affect your repayment plans. Aiming to completely pay the debt off before the interest kicks in can significantly reduce your payments.

Balance transfer cards can lower your credit rating. They may be convenient, but the increased credit utilization can lower your credit score.

Consolidating debt with a home equity line of credit


  • Low interest rates 
  • Tax-deductible payments


  • Risk of foreclosure
  • Paying more than the house is worth if the value drops
  • Not easily discharged in bankruptcy
  • Can take up to 10 years longer to repay


Homeowners or property owners have the opportunity for home equity loans. This is a loan taken out against your house that you can use to consolidate your debt.

Unlike credit card loans, home equity loans are lump-sum loans that have a fixed interest rate. However, these loans often have interest-first repayment plans. These plans may require you to pay 10+ years of interest before even starting to pay towards the value of the home.

Your credit will receive less of a blow using an equity house loan, but you risk foreclosure and will have to pay lengthy interest rates before paying it off.

Consolidation Plans for Your Situation

Developing a consolidation plan is an important step in becoming debt-free and lowering your monthly payments. Only paying one loan or card after consolidating your debt can lower your interest rate and boost your credit score to significantly decrease the amount you need to pay monthly.

If you are looking to consolidate your debt, Western Shamrock can help you. We offer various loans with flexible plans and can talk to you about the best options to consolidate your debt today. Contact us to get started today.

Other Recent Posts

Select Your Branch

When Life Happens

We’re Here to Help

Select Your Location

To begin, select a state or let us detect your location