How to Consolidate Debt Without Hurting Your Credit

How to Consolidate Debt Without Hurting Your Credit

Juggling multiple debts can be overwhelming — but debt consolidation might be the solution. Done right, it can simplify your repayments, reduce interest, and help you get ahead financially. But how do you consolidate debt in Australia without damaging your credit score? Let’s break it down.

What is Debt Consolidation?

Debt consolidation means combining multiple debts (e.g., credit cards, personal loans) into a single loan with one monthly repayment. You can do this via:

  • A debt consolidation personal loan
  • Balance transfer credit card
  • Home equity loan (if you own property)

How It Affects Your Credit

Consolidating debt can help your credit score if:

  • You make payments on time
  • You lower your credit utilization rate
  • You don’t close old accounts right away

However, applying for new credit may temporarily lower your score by a few points due to a “hard inquiry.” This usually rebounds within months if managed well.

Tips to Consolidate Without Harm

  1. Compare multiple lenders for the best interest rate
  2. Use a loan calculator to assess affordability
  3. Keep credit card accounts open after balance transfer (but don’t use them)
  4. Don’t skip payments during the transition
  5. Avoid taking on new debt until the consolidated loan is paid off

When to Avoid Debt Consolidation

  • Your total debt is too large to repay even with lower interest
  • You have poor credit and can’t qualify for a better rate
  • You tend to overspend right after paying off balances

Need Help?

Reach out to a certified financial counsellor in Australia or use government resources like MoneySmart for free, unbiased guidance.

Disclaimer: This article provides general information only. Always consider seeking professional advice tailored to your circumstances.

Debt consolidation documents and calculator on desk 

 

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