Can I still use my credit card after debt consolidation? (2024)

FAQs

Can I still use my credit card after debt consolidation? ›

The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

If you use a consolidation loan to pay off your credit cards, you don't have to close them, and you can certainly use those funds to pay your collections. Lenders issue consolidation loans and they are usually in the form of secured or unsecured loans.

DMPs can help you pay down your unsecured debt considerably faster. The tradeoff is that you'll have to close those accounts. For example, any credit cards you choose to include in the DMP will be closed. You won't be able to use those credit lines anymore.

Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.

You should be able to use credit even if you have a settled loan. Getting the most out of a credit card might help you improve your credit score and increase your chances of getting a loan. Use your credit card and pay off your entire amount before the due date.

Although you may be approved for a loan, the interest rates offered to you will likely be high and may negate the savings you hoped to achieve by consolidating your debt.

You have to close all of the cards you put on the program. Creditors don't want you to use the cards when you're having a benefit from a debt management program. But if there's a card that you can keep out of the program, you can do that. You can keep the card out and use it for emergencies.

While you can continue using credit cards that aren't in your DMP, it may not be the best decision. If you are not careful, you could end up accumulating more debt. This added financial burden could strain your budget and make it challenging to meet your monthly DMP obligations.

How do I build my credit after consolidation? ›

Consolidating may even give your credit score a bump, according to a new report from Transunion. Nearly 70% of consumers who consolidated debt saw their credit scores improve by more than 20 points, the analysis found. Those with a VantageScore under 720 saw the biggest improvement. VantageScores range from 300 to 850.

Consolidating debt can be a good idea if you have good credit and can qualify for better terms than what you have now and you can afford the new monthly payments. However, you might think twice about it if your credit needs some work, your debt burden is small or your debt situation is dire.

Debt consolidation — combining multiple debt balances into one new loan — is likely to raise your credit scores over the long term if you use it to pay off debt. But it's possible you'll see a decline in your credit scores at first. That can be OK, as long as you make payments on time and don't rack up more debt.

Is it a good idea to consolidate credit cards? Consolidate your debt if you can get a better interest rate and/or it will help you make payments on time. Just make sure this consolidation is part of a larger plan to get out of debt and you don't run up new balances on the cards you've consolidated.