In determining the best way to get out of a financial quagmire, many consumers first go through the process of determining what might work best for them and what the long term impacts might be on their credit rating. The ability to build back good credit is difficult and many consumers know this. There are a few options that are available for the deeply in debt credit card holder and consumers in general. However, not all options are the same when it comes to hurting or helping your credit rating. With this in mind, many consumers show an interest in obtaining a debt consolidation loan but don't always understand what it can do for them.
In the majority of cases a credit card debt consolidation loan is one that takes all of your outstanding bills and combines them into one bill. There is often no reduction in the payoff amount of the outstanding credit card bills, personal loans or other lines that you are consolidating. When you get the loan, these are paid off in full and will show such on the credit report. Although, they will be reported as closed lines (a slight hit to the rating), they also show as paid in full which for the most part is positive. So if you pay off all your debts in full the impact of a debt consolidation loan is mostly agreeable.
Where it gets a bit sticky is when the debt consolidation firm you are working with tries to negotiate payoffs for less than the balance owed. Although getting a deal for less money is good from a loan and payment perspective, it can have mixed results on your credit rating. In this case these lines of credit are again closed but now notated with "settled for less than legal balance". Sometimes this can cause concern with future creditors when you apply for additional credit. It does not impact your overall score too significantly but does "taint" the impression of your ability to pay. It is, as they say, a trade off. Less money to pay back but a bit of a risk.
If you look at a credit card consolidation loan compared to other methods of alleviating debt such as bankruptcy, there is no comparison. The settlement or bill consolidation has a much more positive overall impact on your credit in the short or long term than any of the more drastic steps that you could possibly take.
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