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Debt Consolidation Can Help or Hurt Your Credit

Dear Experian,

Does debt consolidation for credit cards with high interest rates help your credit?

– SRO

Dear SRO,

Interest rates do not appear on a credit report; therefore, the interest rates on your credit cards do not affect your credit worthiness or credit scores.

While consolidating those debts into a single payment with a lower interest rate can help you pay off debt faster, you should be wary of companies offering debt consolidation plans.

Some plans require you to become delinquent on your accounts in order to enter into the program. Missing even one payment on an account will hurt your credit history and your credit scores.

Additionally, if the company managing your payments under your debt consolidation plan fails to make the payments on time, you are responsible, and those late payments may be reflected on your credit reports.

Plus, if the company convinces you to close all of your credit card accounts, it may negatively affect your utilization and you have no way to rebuild a rich history by using those cards in the future in a responsible way.

A better option may be to find a reputable non-profit credit counseling company near you that can enroll you in a debt management plan. They can help you negotiate terms with your creditors and assist you with making sure payments continue to be made on time during any changes made to your payment schedule. They also can provide budgeting and financial management training and advice to help you along the road to recovery.

Thanks for asking.
The “Ask Experian” team

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