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Debt Consolidation Loan & Mortgage

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Mark Cappel
UpdatedMar 22, 2023
Will applying for a debt consolidation loan be looked upon negatively if applying for a home mortgage?

Will applying for a debt consolidation loan be looked upon negatively if applying for a home mortgage?

Generally speaking, a debt consolidation loan should not negatively affect your ability to obtain a mortgage loan, or otherwise negatively affect your credit rating. Basically, a debt consolidation loan replaces one type of debt on your credit report with another; it does not increase the total amount of debt you owe. Since one of the major considerations used in calculating your credit score is your ratio of debt to available credit, and since a debt consolidation loan does not increase your debt, this type of loan should not harm your credit rating. In fact, since the debt consolidation loan will pay off other debts, leaving you with the same amount of debt but more available credit (the available credit on your old accounts), consolidation could actually improve your credit score.

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Usually, you are not required to close credit cards or other accounts you pay off with a consolidation loan. The primary benefit to keeping older accounts open is to maintain the positive payment history you have built over the years. If you do decide to keep the accounts open, make sure that you do not charge up new balances. A common pitfall for consumers who consolidate debts is that they then charge their credit card accounts back up, leaving them with twice the debt they started out with. And in many cases, half of that debt is now secured by their home. If you are considering a debt consolidation loan, I definitely encourage you to get rid of most of the accounts you paid off with the consolidation loan so that you are not tempted to use the cards again and put yourself in a worse financial bind. You can keep a few of the accounts open for emergencies, and to maintain accounts with a long payment history on your credit report, but you should try to pay off any charges made on the accounts at the end of each month, if at all possible.

Credit scoring is too complicated for me to tell you specifically how a particular action will affect your credit score, but I do not think that taking a debt consolidation loan would have negative effect on your score, or your ability to obtain a new mortgage loan. In fact it may help you improve your credit score. The better your credit score, the lower the interest rate on your new mortgage should be, so if you do decide to consolidate, you should probably keep your oldest accounts with a positive payment history open, so that you can maintain their positive influence on your report, but you may want to close some of your newer account to prevent building up new balances.

If you are interested in a debt consolidation loan, check out the Debt Consolidation section at

You can also submit your information on the Savings Center, found near the top of all pages, and we can match you with potential loan providers to discuss debt consolidation loans options that fit your needs. Also, if you visit the Mortgage Resources page you can read more about mortgage loans and begin your search for a loan that fits your needs. I hope that the information I have provided helps you Find. Learn. Save.


Did you know?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2022 was $16.91 trillion. Auto loan debt was $1.55 trillion and credit card was $0.99 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in West Virginia credit card delinquency rate was 5%, and the median credit card debt was $410.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.

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