What Is Consolidated Credit?

BY Molly Zilli
Dec 4, 2020
Key Takeaways:
  • Consolidated credit, or debt consolidation, simply means replacing multiple balances with one account.
  • Consolidated credit can make managing debt easier because you only have one payment.
  • Debt consolidation loans should offer lower interest rates, lower payments, or both.

Given the staggering amounts of personal debt maintained by U.S. households, it’s no wonder many people find themselves struggling to pay their bills. And it’s tough to know where to start once you decide to take action. Whether you or someone you care about is searching for ways to climb out from under a mountain of debt, it’s important to know that there is a variety of options available. One such option is consolidated credit. But what is it, and is it right for you?

Below, you can learn more about consolidated credit, managing your debt, and taking the first steps toward a brighter financial future.

What is consolidated credit?

When it comes to personal finance, the myriad of terms used by professionals can seem confusing. Often, terms are used interchangeably or have different meanings in different contexts. “Consolidated credit” is just such a term, but it usually refers to the tactic of taking out a loan to pay off unsecured debt, such as credit cards, student loans, and medical bills. With consolidated credit, your debt is restructured and consolidated in one place, which simplifies your repayment process.

Consolidated credit is one option among many for people struggling with debt. If you choose to work with a consolidated debt counseling company, they may help you evaluate your debts, interest rates, income, and payment plans to help you understand out what type of debt management program is best for you.

When should you consider using consolidated credit?

If you’re having a tough time paying multiple bills, getting collection calls, or think you could get a better interest rate on your debt, consolidated credit could be a good option for you. Trying to manage several due dates every month and racking up unnecessary interest charges and fees make paying back your debt even more of an uphill climb than it needs to be.

Taking out a loan to pay off your other bills could help you get out of debt faster. However, if you go the consolidated credit route yet continue to add to your overall debt with other credit cards and other expenditures, you may make your debt problem worse. Consolidated credit works better as a part of an overall debt management strategy that may include budgeting and consistent repayment plans.

Common questions about consolidated credit

If you’re researching ways to handle your debt, you probably have questions about your options. Here are a few FAQs about consolidated credit and other debt management techniques.

Q: Does consolidated debt counseling hurt your credit?

Simply receiving consolidated debt counseling typically won’t hurt your credit. However, actually consolidating your debt could damage or improve your credit, depending on how you manage it.

Two common ways to consolidate your debt are debt consolidation loans and balance transfer cards. A loan allows you to pay off your outstanding debt, and then make monthly payments until that loan is paid off. However, it can be difficult to qualify for a consolidated credit loan with low interest rates if you don’t have a good credit score.

With a balance transfer card, you can consolidate your credit card debt onto one card with a low introductory interest rate (often at 0%) and a transfer fee. However, once that introductory period is over, the interest rate can shoot back up and would apply to the remaining balance on your consolidated credit card.

Since both debt consolidation loans and balance transfer cards entail a hard inquiry on your credit, they can lower your score a little. Additionally, it’s important to pay attention to the terms of a consolidated credit offer. If you’re not diligent about repayment or changing your spending habits, debt consolidation could enable you to add to your debt and hurt your creditworthiness.

Q: What is the best way to consolidate credit?

Some debt counselors will recommend that you use the equity in your home to pay off your other debts. However, this form of consolidated credit converts unsecured debt into secured debt. In other words, under this new scenario, you could lose your home if you can’t make your payments.

Additionally, all too often, people use debt consolidation as a temporary band aid — a way to make collection calls stop. But when they don’t adjust their spending and repayment efforts, their debt simply gets worse. Instead, it is better to use consolidated credit as a part of an overall, simplified, well-planned strategy that involves lowering your interest rates and fees, sticking to a realistic budget, and avoiding new debt.

Q: What is a consolidated credit company?

A consolidated credit company usually offers debt management services including one, some, or all of the following:

  • Debt consolidation loans

  • Balance transfers

  • Debt evaluations

  • Debt management plans

  • Debt negotiation and settlement

If you’ve accumulated unsecured debt, whether it’s credit card debt, student loans, or another type, you’ve probably received offers from multiple companies promoting their debt consolidation strategies.

However, before you sign on with a consolidated credit company, it could be worth trying to resolve your debt with a DIY strategy, including any of the following:

  • Avalanche method: paying off debt, beginning with the highest interest rate.

  • Snowball method: paying off your debts, beginning with the smallest loan.

  • Bankruptcy: asking a court to discharge your debts and settle them with your creditors under a new agreement.

Although it’s not always possible to resolve all outstanding debt, many people have been pleasantly surprised by how much debt they’ve been able to pay off using a calculated, diligent DIY method.

Q: How do I find a consolidated credit or consolidated debt counseling company?

There is no shortage of companies offering to refinance or manage your debt. However, not all of them are reputable. When selecting a consolidated credit company, be sure to do your research. Read reviews, examine their fees and terms closely, ask others for recommendations, and see if they offer a free evaluation. Lastly, check the company’s reputation with the Better Business Bureau, and see if they are registered with organizations like the American Fair Credit Council.

Find the right solution for your debt

If you’re feeling overwhelmed by debt or struggling to make those minimum payments, researching your debt management options can feel like one more complicated task on your growing to-do list. But ignoring the problem won’t help it go away any sooner. Whether you’re thinking of taking the consolidated credit approach, considering debt settlement, or simply need help coming up with a debt management plan, the experienced debt consultants at Freedom Debt Relief can help you understand your options, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify right now.

Recommended Reads