Does consolidation ruin your credit?

No, consolidation by obtaining a new loan shouldn’t ruin your credit score, however new loans will probably require credit checks, so you may see a dip in your score. If you choose to consolidate your loans through a “consumer proposal”, this will negatively impact your credit score.

What happens when you consolidate your debts?

It will depend on how you decide to combine your debts. If you are approved for a home equity loan, you will receive a lump sum which you can use to pay off your chosen debts. If you obtain a line of credit, the money shows up as another account you can draw money from and use to settle your outstanding loan accounts. A credit card balance transfer is a little different. You must transfer the balance from one card to another. You can initiate the transfer by phone, web, or convenience cheque and the issuer typically pays off the old account directly. A consumer proposal is not a standard debt consolidation loan. A trustee negotiates directly with your creditors, and once there’s an agreement, you pay the firm. They are responsible for paying your creditors.

Lindsey Boycott – PiggyBank

Lindsey specializes in writing about personal finance and business trends. She has a B.A. in psychology and is currently working towards completing her Canadian Securities Course.

When she’s not exploring the relationship between mind and money, Lindsey likes to play vintage video games, read all books, and go skiing.