Your One Stop Resource for Saving Money.
Roll Credit Card Debt and Debt Consolidation - The Bills.com Blog
Bills.com Blog > Credit Questions > Roll Credit Card Debt and Debt Consolidation
Roll Credit Card Debt and Debt Consolidation
Friday, Dec 26, 2008
Question: If I roll all of my credit card debt into a debt consolidation will it close my credit cards and reflect poorly on my credit?
Answer: First, let me tell you that you are not alone in this predicament, I get many questions about the same problem. Keep in mind that any third party assistance with your debt is going to affect your credit one way or the other. If you are able to pay more than the minimums, then you should keep doing so. I know it can be frustrating to see your balance not reduce that quick, but you have to keep at it. If you have good credit, I would try to apply for 0% APR balance transfer credit cards. Be careful though, many cards charge a onetime fee, you should do your research on these. You can also apply for a debt consolidation loan, that way you will have put a definite payment amount towards this debt and know for sure when you will be paying it off. You should also not transact on your credit cards, do not fall for the temptation of using them, just leave them for emergencies.About the your question on your credit; the answer to your question depends on what type of program you are referring to when you say "debt consolidation." This term is widely used, and misused, in the financial services world to mean several different debt relief options.
The most common, and probably the most accurate, usage refers to debt consolidation loans, wherein a consumer takes a single loan, usually secured by his home or other property, to pay off several other creditors. Debt consolidation loans are designed to lower the overall interest rate on debts, and to allow the consumer to make a single monthly payment to one creditor instead of paying multiple creditors. Debt consolidation loans do not generally have a negative impact on consumers' credit scores, as these loans do not increase in the
amount of debt; they simply move it from one account to another. Also, consumers can leave open a few of their older accounts to make sure that they still have plenty of positive payment history appearing on their reports. To read more about debt consolidation loans, you should visit the Bills.com Debt Consolidation Loan Resources page at http://www.bills.com/debt-consolidation-loan/
Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at:
Mortgage Refinance Quote
The second most common debt relief option called debt consolidation is consumer credit counseling. Consumer credit counseling service (CCCS) companies attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a CCCS program, you would pay the CCCS firm a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the CCCS company pays your creditors on time each month, and the payment is large enough to cover the minimum payment, then a CCCS plan should not hurt your FICO score. However, some CCCS programs do not make payments timely, or make payments that are too small, resulting in delinquencies on their member's credit reports.
In addition, very importantly, CCCS is reported to the credit bureaus and many lenders look at credit counseling as if you had filed for Chapter 13 Bankruptcy. So, while your FICO score will not be impacted, your credit profile is very negatively
Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at:
Mortgage Refinance Quote
The second most common debt relief option called debt consolidation is consumer credit counseling. Consumer credit counseling service (CCCS) companies attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a CCCS program, you would pay the CCCS firm a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the CCCS company pays your creditors on time each month, and the payment is large enough to cover the minimum payment, then a CCCS plan should not hurt your FICO score. However, some CCCS programs do not make payments timely, or make payments that are too small, resulting in delinquencies on their member's credit reports.
In addition, very importantly, CCCS is reported to the credit bureaus and many lenders look at credit counseling as if you had filed for Chapter 13 Bankruptcy. So, while your FICO score will not be impacted, your credit profile is very negatively
impacted.
If you are interested in enrolling with a CCCS firm, you should discuss these issues in detail with the firm before making your final decision. To find out more about Credit Counseling, visit the Bills.com website at http://www.bills.com/credit-counseling/
Debt settlement programs are also frequently called debt consolidation. These programs, in which you save money monthly to negotiate settlements rather than making monthly payments to your creditors, definitely do have a negative impact on your credit score. In the months that you are saving money to negotiate with your creditors, your accounts will be listed as delinquent on your credit reports. However, the benefit of these programs is that they can often result in significant reductions in the balance of your debt, sometimes reducing your debt to 40% of what you previously owed. Many consumers find this benefit well worth the temporary negative impact on their credit scores. Bills.com offers a wealth of information about debt settlement and other debt relief options, available at Debt Relief Savings Quote
Unfortunately, Credit scoring is too complicated a calculation for me to accurately estimate the effects of any of the different forms of debt consolidation I have described above on an individual's credit score. However, in my descriptions above I described the general effects of these three options, which I hope will help you in deciding the option that is best for you, and help you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
If you are interested in enrolling with a CCCS firm, you should discuss these issues in detail with the firm before making your final decision. To find out more about Credit Counseling, visit the Bills.com website at http://www.bills.com/credit-counseling/
Debt settlement programs are also frequently called debt consolidation. These programs, in which you save money monthly to negotiate settlements rather than making monthly payments to your creditors, definitely do have a negative impact on your credit score. In the months that you are saving money to negotiate with your creditors, your accounts will be listed as delinquent on your credit reports. However, the benefit of these programs is that they can often result in significant reductions in the balance of your debt, sometimes reducing your debt to 40% of what you previously owed. Many consumers find this benefit well worth the temporary negative impact on their credit scores. Bills.com offers a wealth of information about debt settlement and other debt relief options, available at Debt Relief Savings Quote
Unfortunately, Credit scoring is too complicated a calculation for me to accurately estimate the effects of any of the different forms of debt consolidation I have described above on an individual's credit score. However, in my descriptions above I described the general effects of these three options, which I hope will help you in deciding the option that is best for you, and help you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
User Comments
Submit questions/comments about this post:
Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2009Bills.com LLC. All Rights Reserved.
1. Posted by Deborah on Sunday 11th January 2009 18:49
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often. Deborah