Debt consolidation hurts credit and your accounts get canceled.

Thanks for being a regular reader. I am glad to hear we have been part of your information gathering process. Depending on your perspective, how credit counseling affects your credit rating and ability to keep using your cards could be good, bad, or indifferent.

The good news here is that you have options. The bad news is that every one of these options is going to affect your credit, whether the credit score itself, or your ability to get approved for additional credit.

If you file bankruptcy, your accounts will be closed. If you enroll in credit counseling or a debt management plan (DMP), your accounts will be closed. If you venture into debt settlement, the accounts you want to settle will be closed.

Each of these debt relief options will also prevent you from getting approved for future credit over some predictable time lines.

At this point, when you realize you are running out of money before you run out of month, put your credit score and future credit concerns on the back burner. You have to take stock and make a plan to deal with the debt first. You can choose an option to manage the tough spot your in with an eye on your future credit needs, but you cannot allow that to cloud your judgment.

Consolidating your credit cards – the math.

If your interest rates are high, determine if you can keep your payments current in a debt management plan.  Add up your balances and then calculate 2.25%. If you are 100% confident you can come up with that amount monthly while still meeting all other obligations, a credit counseling debt management plan will likely work for you.

Next consider if you can qualify for chapter 7 bankruptcy given your states means test. You should find a local bankruptcy attorney to learn about your qualifications. In the consultation, you may find out you qualify for chapter 7, but learn additional reasons for trying to avoid this path. If you learn you cannot qualify, or wish to try to avoid filing, you will then want to learn about your options with debt settlement.

Debt settlement will generally prove to be a better option than chapter 13 bankruptcy (unless your situation is complicated).

In order to learn more about how a debt settlement approach may work in your situation, it would be good for me to know who you owe the credit card debts to, and the balances on each account. You can list those in a comment reply below and I can give you some settlement estimates and general expectations when settling with each creditor.

The best way to determine the affects of debt consolidation are to focus first on the viability of your new lower monthly payment given you current income and expenses. If the consolidated payment is more than you can afford, what can you afford to pay each month? Whatever that amount is, times it by 24 (months). If that amount adds up to roughly 40 percent of your credit card balances today, or you are confident you can add money to that amount in that same 2 year period, settling rather than consolidating will often make sense.

Credit card consolidation cannot compete with chapter 7 bankruptcy, which is why I suggest starting with the bankruptcy consultation and working backwards from there.

Anyone concerned with how credit card consolidation stacks up to other options, and how any of it will hurt your credit, is welcome to post in the comments below for feedback.