Debt consolidation involves combining multiple debts into a single, simplified payment plan, typically with a lower interest rate. It can be a useful strategy for managing debt, but it’s important to understand the potential impact on your credit.
Debt consolidation can have both positive and negative effects on your credit score. On the one hand, consolidating your debts can reduce your overall credit utilization ratio, which is a key factor in determining your credit score. A lower credit utilization ratio indicates that you are using less of your available credit, which can improve your score. Additionally, debt consolidation can simplify your monthly payments and make it easier to manage your finances, which can also have a positive impact on your credit score.