No, a debt consolidation loan won't damage your credit rating as long as you keep up with your repayments on the loan.
If you have several unsecured debts to repay each month with varying interest rates, it may help to take out one large loan, with a lower interest rate, to pay off all your smaller unsecured debts at once.
You may then be able to repay your debt consolidation loan at a slightly different pace, but if you arrange to pay it back over a longer period of time, you should be aware that the interest will increase, so you’ll end up having to pay back more.
Plus, before you pay off all your unsecured debts with a debt consolidation loan, check whether your lenders would charge early repayment fees. If they do, it might not be worthwhile. Finally, note that securing debt against property can put that property at risk if you don't keep up with the payments.
What kind of debt consolidation will affect my credit rating?
There are other debt solutions that can help people bring their unsecured debts together so they make just one payment per month.
Debt management plans, for example, can help people who can't currently manage their unsecured debt repayments, but would be able to afford them if they were smaller. Though debt management plans can really help people get their debts repaid, making smaller repayments on your debts will negatively affect your credit rating for up to six years.
It may, however, be a good option for struggling borrowers who want to clear their unsecured debts without taking out another loan, or whose credit rating is currently too poor for them to obtain a loan or a 0% balance transfer credit card. We wouldn’t, however, recommend that you take out a 0% credit card to repay the loan unless you are sure that you’ll be able to repay the full amount within the 0% interest free period, which is usually short term (less than 18 months).
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