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Credit score and debt consolidation

While unemployed, my credit cards were essentially the only thing that I was able to use to take care of all of things I needed. I have about $12,000 in credit card and auto loan debt. Now I'm in a crunch where my savings is gone and my credit cards are maxed out. I do not own a home, nor have much else in terms of equity. I am fortunate enough to have parents who do have the ability to provide me with a loan, somewhat like a debt consolidation loan, in which I could bring my balances down to $0 and pay them back monthly, plus 3% interest as opposed to the 23% interest and overage charges I'm running into with the credit card companies. How will dropping all of my balances down to zero at once effect my credit score? How do debt consolidation programs (other than Mom and Dad, in this case) work? Do debt consolidation companies hurt your score?

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Asked by Anonymous at 10:30 AM on Dec. 6, 2009 in Money & Work

Answers (4)
  • debt consolidation is supposed to improve your score not drop it I;d think your credit would start improving once you paid them off just don't cancel your credit cards for every one your credit will drop 70 points

    Answer by chica679 at 1:12 PM on Dec. 6, 2009

  • Debt consoldation companies actual hurt your credit. I would go with the loan from your parents and get rid of all but 1 or 2 credit cards. Do NOT open more, do NOT max out the cards again. Use them and pay them off the next month. It takes 6-12 months to improve your credit. Good luck!!

    Answer by tyfry7496 at 1:56 PM on Dec. 6, 2009

  • Debt consolidation companies hurt your credit.
    Take the help from your parents but don't cancel all your accounts. Cut them up or give them to your parents if you don't want to use them. The length of time accounts have been open is important for your credit score as is having a few accounts. If you already have them don't cancel them. Use 1 or 2 a month to make some small purchases but make sure you make a payment when you get home or at the end of the billing cycle so you don't carry a balance.
    Do not open anymore accounts. Opening too many at once dings your credit as well.
    Hubbies credit score is 820 - this has worked for us

    Answer by AussieMum2 at 6:09 PM on Dec. 6, 2009

  • Aussiemum is right....Take the loan from your parents, that wont report on your credit, your score will actually jump a good deal paying off the credit cards...i paid off about 800 bucks (all the little cards i had) and my score went up 40 points in two months. But dont close out your accounts...your credit score is about credit HISTORY, and if you close all accts youll have to start all over again as far as building history. just pay em off and keep em open...charge occasionally and sparingly.. like for gas type deal. your score will keep improving as time goes on, and if your debt:income ratio stays at a good level.

    Answer by sweetstkissez22 at 11:09 AM on Dec. 7, 2009

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