Does consolidating credit card debt hurt credit score
Particularly if you have good credit, you may be able to qualify for a lower-rate loan.
Even if you don’t have great credit, there are other routes to consider. Todd Huettner, a personal finance expert who runs Huettner Capital, a residential mortgage lender in Denver, says before consolidating, you may want to figure out why you wound up with the debt.
Banks, credit unions and online lenders offer these options to consumers.
Pros: The interest rate on home and auto loans may be lower than on credit cards, partially because they’re secured loans.
Also, “some of these companies will require that you close your credit cards once you pay them off,” says Maggie Germano, founder of a financial coaching service in Washington, D. Closing accounts isn’t always bad, but it could hurt your credit.
With a loan from a qualified plan, such as a qualified 401(k), you may avoid paying an early withdrawal penalty in a few different circumstances.
Cons: You lower your retirement savings, and you may have to pay income taxes and an early withdrawal penalty if you’re younger than 59 ½.
Also, you can usually only borrow up to 50 percent of your account balance (up to ,000), and you must pay back the money within five years unless you’re using it to buy a home that will be your principal residence. Eric Klein, an attorney with the Klein Law Group in South Florida recommends, “Never, ever use your qualified money (401(k), IRA, pension, etc.) to consolidate credit card debt.” In addition to the reasons above, he explains that your qualified money could be protected from creditors if it’s in a retirement account.
You may be able to take money out of your home or vehicle by using a cash-out refinance or a HELOC.
You’re also taking on secured debt in exchange for paying off your unsecured credit card debt.