Consolidating debt and credit score
Consolidating debts into one loan used to mean “let’s pull money out of our home equity line and pay off the creditors” – and then the housing market collapsed, and with the collapse of the housing bubble came the end of the HELOC games.
If you simply roll all your credit card balances into one big personal loan without having any idea how you’ll pay that debt off in the next five years, then you might as well not have bothered. Or will you find yourself struggling to pay it, and thus end up relying on your newly balance-free credit cards?
If you’ve got high balances but always pay at least the minimum on time, then your credit score is probably high enough to get a lower rate than your credit cards.
But if you’ve missed payments regularly, it probably makes a personal loan nothing more than a lateral move in terms of your monthly interest payments.
The key, however, is having a plan to pay off debt.
If you don’t have your route out of debt mapped out, then the individual moves you make might lead you way off track.Debt repayment is as much about a change in mindset as it is about a change from credit cards to a bank loan.