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Does Debt Consolidation Hurt Your Credit?

6 min read

Published March 19, 2025

Table of contents

Key Takeaways

Consolidating your debts with a balance transfer credit card offer or loan may help you repay your balance more easily.
Debt consolidation's impact on your credit score depends on your credit habits.
Best practices, like sticking to a budget and payment plan, may help you get the most out of debt consolidation.

It’s not always easy to stay on top of your bills, especially if you have several types of unsecured debt like credit cards and personal loans. Debt consolidation could make the burden more manageable. While debt consolidation is often a useful tool for debt relief, it’s not necessarily a perfect solution on its own. It's important to understand both the benefits and the risks of debt consolidation for your credit score.

How debt consolidation affects your credit

You consolidate debts by combining multiple unsecured debts into one account to simplify repayment and save you money on interest. With responsible financial habits, debt consolidation may help you reduce your overall debt and make timely payments. These are both factors that may help improve your credit score. While there are several debt consolidation methods, two common tools are personal loans and credit card balance transfers.

To use a debt consolidation loan, you apply for a specific sum that covers all your outstanding debts. After you use the money to repay your balances, you have to make payments on only one loan with a set interest rate and term.

Alternatively, you might take advantage of a credit card balance transfer offer by moving your debts to a card with a low introductory APR. A credit card balance transfer may minimize your interest fees, especially if you repay your balance in full before the introductory period ends.

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Shortly after you begin the process, you may notice a dip in your credit score initially. However, debt consolidation may ultimately help your credit score as long as you maintain healthy financial habits.

Ways debt consolidation can help your credit score

If you manage your credit card responsibly, debt consolidation should help you overcome your debts and have a positive impact. The following are some of the ways debt consolidation may help your credit score:

Improves your credit mix. A credit card balance transfer may help your credit score if you’ve previously only had a student loan, mortgage, personal loan, or another installment loan. While credit mix accounts for a small portion of your credit score, lenders typically like to see a mix of revolving accounts and installment accounts.
May reduce your credit utilization ratio. Your credit utilization ratio is the total portion of your available credit in use at a given time. Credit utilization makes up a significant portion of your credit score. Ideally, debt consolidation should make paying down your balance easier—especially if you’ve found a card with a lower interest rate. Your credit utilization should shrink as you pay down your balance, which is good news for your credit score.
Builds a positive payment history. With multiple credit card and personal loan bills on your plate, you might easily lose track of a due date and miss a payment. Debt consolidation may leave you with fewer payments to remember, so it’s harder for a due date to slip your mind.

Ways debt consolidation can hurt your credit

Debt consolidation doesn’t guarantee a better credit score. The habits and decisions that lead to unmanageable debt could undermine the positive impact of debt consolidation. Here are some ways debt consolidation may hurt your credit score:

May increase your credit utilization ratio. Credit card balance transfers typically cost a small fee that amounts to a percentage of the balance you’re transferring. That amount adds to the total you owe. A balance transfer may be right for you if the money you’d save in interest outweighs the balance transfer fee.

Plus, once you transfer the balances from your existing credit cards, you don’t want to accrue new credit card debt on them once they no longer have balances. This may leave you with more outstanding debt than you started with.

Lowers the average age of your credit accounts. The age of your credit accounts has a small impact on your credit score. By opening a brand new credit card account, you may lower the average age of your credit (especially if you close other credit card accounts). While this may not do much damage, it could compound other issues.
Requires a hard credit check. When you apply for a new credit card, the credit card issuer typically conducts a hard inquiry into your credit report. Hard credit checks often lower credit scores slightly. Your score may quickly recover from one hard credit inquiry as long as it’s followed by responsible credit card use.

Did you know?

Applying for multiple cards at once may hurt your credit score and indicate that you might be a high-risk borrower. To compare balance transfer credit card offers, consider using pre-qualification tools instead. There is no harm to your credit score to check for pre-approval.¹

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Credit card debt consolidation best practices

A few best practices may help you get the most out of your debt consolidation and minimize risk to your credit score.

Set a budget and stick to it. Make sure you take on only debts that you can afford to repay. Avoid overspending on other expenses, too. If you miss payments because you can’t afford them, you could quickly end up in a difficult situation.
Develop a payment plan. Make sure you choose a debt consolidation method with terms that work for you. To avoid adding too much interest to your balance, plan to repay it before the end of the introductory period.
Make more than the minimum payment. Whenever possible, try to pay a little extra. That way, you can pay down your balance more quickly and reduce your credit utilization ratio.
Avoid accruing a balance on your credit cards. You may not want to close your credit card accounts after you transfer the balances to your new card, as this reduces your total available credit and could increase your credit utilization ratio. However, if you’re tempted to use an old card after you’ve completed a balance transfer, getting rid of your physical cards could help you avoid overspending.
Set up autopay. Autopay could help you avoid missing payments. Just make sure you maintain enough in your account to cover the expense on the due date each month.
Compare lenders. Use pre-approval tools to find the best credit card balance transfer offer. Consider interest rates, introductory offers, and repayment terms.

Debt consolidation may help you get out from under multiple mounting debts. However, the long-term effect on your credit score largely depends on your decisions. Healthy habits, like minimizing your credit utilization and paying your bills on time, are key for building and maintaining a solid credit history.

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