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Would debt consolidation affect my credit?

Written byKoyo Loans
Last Updated26th October 2022
Contents
  • In 30 seconds…
  • Introduction
  • Would debt consolidation affect my credit?
  • Is debt consolidation good for your credit?
  • Where to consolidate credit card debt?
  • Can I consolidate credit card debt?
  • Is it better to consolidate credit card debt?

In 30 seconds…

Taking out a loan for debt consolidation can be an effective way of improving your financial management. When done correctly, debt consolidation can have a positive impact on your credit score in the long run, as it enables you to make your monthly repayments on time. You can apply for a loan for debt consolidation from your bank, building society, or a third-party lender. Most people consolidate their credit card debts, but you can use this strategy to consolidate any debts that you have, particularly if you’re struggling with your monthly repayments.

Introduction

While there is a huge variety of uses for personal loans, many borrowers use loans to consolidate debt. However, a decision on this kind of borrowing requires an assessment of your personal finances before submitting an application. Here, we’ve gone into detail answering some of the frequently asked questions regarding debt consolidation.

Would debt consolidation affect my credit?

The impact that debt consolidation has on your credit score depends on how you manage your repayments. If you consolidate your debts, lower your monthly repayments, and make the payments on time, it’s likely to have a positive impact on your credit score. 

If you find yourself paying off a high-interest credit card and several other debts each month, a debt consolidation loan could help you. But you need to make sure that the new loan that you take out actually saves you money, so you will need to calculate your rate of interest over the course of the new loan.  

Also, if you fail to meet the repayments on your debt consolidation loan, your credit score will suffer as a result. This is why it’s so important that you think carefully and conduct sufficient research before agreeing to the terms of any new loan, as missed payments signify financial distress and are a cause for concern for potential lenders in the future.

Is debt consolidation good for your credit?

A debt consolidation loan can be good for your credit, but it depends on how you manage your repayments. If you’re at risk of missing your monthly payments on different credit cards, for instance, consolidating your debts and paying them off in one go can undoubtedly help you. 

It means that you’re only responsible for one monthly repayment instead of several, and provided you have done your research, you should be able to find a debt consolidation loan that is cheaper than the amount you’re currently paying to service your outstanding debts. While your credit score will take a small hit in the short term because of the hard credit check performed by the lender, your decision to take out a debt consolidation loan is likely to work in your favour in the long run, providing you keep up your repayments.

Before applying for a debt consolidation loan, consider using our loan calculator to work out how much you can borrow and how long you have to pay it back. This will help you work out if the repayment terms of a debt consolidation loan are likely to be lower than your current sources of debt, which is an important place to start. 

Where to consolidate credit card debt?

You have lots of choices when it comes to consolidating credit card debt. People often first turn to their bank or building society for a debt consolidation loan, as it enables them to manage their money from one place. 

However, applying for an unsecured personal loan from a lender like Koyo Loans is a viable alternative. We provide personal loans of between £1,500 and £15,000 that you can use for debt consolidation, 24.9% APR Representative. Applying for a personal loan takes just a few minutes, and we will review your application within 24 hours. 

If approved, the money will be in your account the following business day, and you will be able to pay off your outstanding credit card debts there and then. This is extremely liberating and allows you to wrestle back control of your finances. Just make sure you meet the required monthly repayments on your debt consolidation loan to ensure your credit score doesn’t take a hit in the long run. 

Can I consolidate credit card debt?

Paying off multiple credit card debts is one of the best reasons to take out a debt consolidation loan. Not only is it difficult to manage several credit card debts in one go, but it can also be expensive, as interest rates on credit cards are typically higher than other forms of credit. 

By taking out a debt consolidation loan, you can pay off all of your credit card debts in one go. You then only have one monthly repayment to worry about, which is likely to be lower than the combined amount that you were paying off previously on your credit cards. This makes your life easier and reduces the likelihood of you missing repayments. 

You can also use a debt consolidation loan to pay off other outstanding types of debt, including car loans and personal loans if you wish. But as we explain below, taking out a debt consolidation loan is only really worth it if you end up paying less interest in the long run, as getting it wrong can actually increase your debt and the associated monthly repayments. 

Is it better to consolidate credit card debt?

Consolidating credit card debt is a good option if you’re struggling to meet the monthly repayments as they currently are. This might be because they come with particularly high-interest rates or perhaps because you’re finding it difficult to schedule all of the different payments out of your account. 

Whatever reason you decide to consolidate your credit card debt, you need to first do your sums and think about whether it makes financial sense to do so. Our loan calculator shows you how much you can expect to borrow and how long you’re likely to have to pay it back. This can help you calculate whether your new loan repayments will be less than the amount you currently pay on your credit card. 

If you’re able to consolidate your debts into one manageable loan that is cheaper than your current debts, then it’s undoubtedly worth doing so. But as mentioned, it’s best not to just assume that a debt consolidation loan is right for you, and you will need to do sufficient research to ensure that a new loan is a financially viable solution. 

Koyo Loans is the trading name of BETR Technology Ltd. Company No. 11483187. Registered Office: Huckletree Soho, Ingestre Court, Ingestre Place, London, W1f 0JL

Key Takeaways

Consolidating your debts has the potential to transform your personal finances. If you have multiple forms of credit and are consistently struggling to meet the repayments, you can apply for a loan to consolidate your debts. This allows you to pay off all of your outstanding debts before starting the repayments on the new loan. 

When done correctly, debt consolidation makes your life so much easier and can even save you money in the long run. It can also improve your credit score, as consolidating your debts enables you to make your monthly repayments on time. You can apply for a personal loan for debt consolidation from your bank or from a third-party lender like Koyo Loans.

Although most people take out a loan for debt consolidation to pay off their credit card debts, you can consolidate any type of debt. The key thing to remember is to calculate what the new monthly repayments will be, as you don’t want to consolidate your debts only to have to pay back more in interest every month. Ultimately, debt consolidation is a good thing, provided you do it the right way and consider the broader impact of your decision.

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