Should you Consider Debt Consolidation – and Will it Hurt Your Credit Score?

Lenders often encourage people to consolidate credit card debt by taking a second mortgage on their homes – thus spreading payments out over more years, generally at a much lower interest rate.

Sometimes the same company that issued your credit card will encourage you to switch to a home equity loan. They love it because this is a secured loan – unlike credit cards, which are unsecured. They also love spreading your payments out over a longer period of time, because then a larger percentage of each payment is interest (otherwise known as profit to the lender.)

The lender will point out that home equity loans are tax-deductible, so you’ll be saving money. Be careful with that one, as the rules have changed and you may have to prove that the home equity loan was used to make improvements on your home.

So… Should you do it?

The first question you must ask yourself is this: “Do I have the discipline not to turn right around and run up my credit card debt again?” If the answer is no, then no – you should not do it.

What will this new loan do to my credit score? That depends on question #1 – along with the amount of the new credit line you actually use.

For instance, if you have $50,000 equity in your home and are granted a second “revolving credit” line of $35,000, you have just acquired a higher amount of available credit – which is good for your FICO score.

However, if you use every bit of it, that’s not so good. FICO scoring is a bit of a mystery, but the overall consensus is that you should never use over 30% of available credit on any one account.

Can you eliminate those high credit card payments by using 30% of the credit available from your revolving home equity loan? Then it’s a good idea. From that point on, use your credit cards, but pay them off each month when the bills come in. And of course, never charge more in any one month than 30% of their available balances.

Get your credit report right here at and read it carefully. Add up the balances you owe, and consider how large your home equity loan would be. If it all makes sense, then check with several Second Mortgage lenders to compare interest rates and programs before you make a decision.

2 Responses to “Should you Consider Debt Consolidation – and Will it Hurt Your Credit Score?”

  1. credit debt consolidation says:

    For people with credit card debt across multiple cards, this option is one that you should be exploring to reduce your payment burden. Credit card debt consolidation is also the fastest way to pay down your principal.

  2. debt consolidation says:

    Those with poor credit prefer free debt consolidation service. Since free debt consolidation services enjoy healthy subsidies from the creditors, they can afford to take the risk of helping people with poor credit who want to set their finances right.

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.