Debt settlement is surely going to hurt your credit but debt consolidation is not supposed to have any negative effect on your credit. However, you will have to consolidate your debts strategically in order to avoid hurting your credit while consolidating them. In case of debt settlement or debt negotiation, you are required to miss payments on the credit cards or the debt accounts. As a result, your credit score lowers. But, in order to consolidate your debts, you are not required to miss any payments.

Debt consolidation and its effect on credit

In case of debt consolidation, you are required to transfer balance from all of the credit card that you have to a new or an already existent credit card with low interest rate. The other option is taking out a consolidation loan. But, you are in no way required to miss payments on your debt accounts. Thus, debt consolidation cannot have a negative effect on your credit score. With debt consolidation, the number of debts that you have gets rolled over as a single debt and the interest rate on your debt gets lowered too.

But again, both in case of balance transfer or taking out a consolidation loan, after consolidating the debts, if you close down the accounts, it can lower your credit score. If this is considered, you will have to avoid closing down the accounts. This is because, when you close down your accounts, the available credit on all of these accounts gets lowered but in comparison, your credit usage increases. But, it is said that if your credit usage is high in comparison to the available credit, it can have a negative effect on your credit. It is advised by all that you should be able to maintain low debt levels and low credit usage. Otherwise, you will end up hurting your credit.

So, what you need to so is, avoid closing down all of the accounts at the same time. This is going to help you avoid hurting your credit while consolidating your debts. Even if you are planning to stop using the credit cards after consolidation, close one or two accounts at a time. This might not result in high impact on your credit.

Other than this, only if you miss payments even after consolidating the debts, it definitely is going to hurt your credit. Otherwise, if you follow the above strategy to maintain the zero balance accounts, you will easily be able to improve your credit within some time.

So, the main idea is that debt consolidation unlike debt negotiation does not have a direct negative impact on your credit.