The Debt Consolidation Process Can Both Help and Hurt Your Credit

Even though a debt consolidation process can pay down or payout your unsecured credit card and line of credit debt, it can  also hurt your credit.

Let me explain.

While its not all that common of a practice, lenders that grant debt consolidation loans can require the borrower to close all the accounts being paid out, perhaps leaving the individual with no credit cards at all.

If the credit score was already low due to the debt being consolidated, the reduction in all available credit will likely make it even worse.  And without any active credit cards of any sort, it will be basically impossible to rebuild your credit score.

This is where utilizing the skills of an experienced mortgage broker can come in handy.

While the lender may come back with the requirements to payout and close off all credit card and line of credit accounts, an experienced mortgage broker has the ability to try (and I do say try) to negotiate keeping a couple of credit cards and one line of credit open.  If the broker is successful, then the borrower will have truly received the full benefit from debt consolidation.

The reason why this is even possible is due to relationships mortgage brokers can develop with the credit departments for various mortgage lenders.   This provides some what of a platform for the broker to make a case on the borrowers behalf for a reduction in the severity of the payout requirements.

While an individual may try to attempt this on their own, its unlikely they will get very far as credit decisions tend to be very difficult to change.

And when you’re dealing with a mortgage broker that has a focus on debt consolidation, its very likely he or she will be proactively positioning for a positive outcome during their discussions with the mortgage lender prior to a commitment even being issued.

If you’re considering taking advantage of the current mortgage rates to perform some debt consolidation of your own, I would recommend that you give me a call so that we can go over your situation together and develop a plan to get you the best overall results.

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About the Author Joe Walsh

I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel