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.

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.

Don't be without using credit in your rebuilding period: Even if you have just had a credit card settlement, use your credit card within 30% of your credit card limit in the rebuilding period. Open a new credit card account with a low balance and pay off your dues and bills correctly.

While it may be difficult to open a new line of credit with a lower credit score, debt settlement does not prevent you from getting a new credit card in the future.

A debt consolidation loan may temporarily lower your credit score by a few points due to the hard credit inquiry. But, over time, consolidation could improve your score. You may find that it's easier to make on-time payments with a single consolidation loan each month versus multiple debt streams.

It is possible to get a home loan and very possible to get a car loan, student loan or new credit card while you're on a debt management program. Nonetheless, a good nonprofit credit counseling agency would advise you to slow down and weigh the risks before acting.

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.

However, credit cards and personal loans are considered two separate types of debt when assessing your credit mix, which accounts for 10% of your FICO credit score. So if you consolidate multiple credit card debts into one new personal loan, your credit utilization ratio and credit score could improve.

If you can afford to pay off a debt, it is generally a much better solution than settling because your credit score will improve, not decline. A better credit score can lead to more opportunities to get loans with better rates.

Is settlement good for a credit card? ›

Opting for Credit Card settlement is as good as declaring yourself bankrupt to prospective lenders. As such, you must avoid it as much as possible to protect your chances of securing credit in the future. You should only opt for the settlement process if you have no other options left to clear your outstanding dues.

While settling your debt may be a huge relief, you need to be prepared to pay taxes on the amount settled. Depending on the type of debt, your creditor may send you a 1099-C cancellation of debt tax notice. This information will be reported to the IRS, and you'll need to report it as "other income" on your tax return.

Yes, you can buy a home after debt settlement. You'll just have to meet the lender's requirements to qualify for a mortgage. Unfortunately, that could be harder after you settle debt.

While the effects of bankruptcy hang around for 7 to 10 years on your credit report, that's not how long you must wait to borrow money. The impact of the penalty decreases each year, and it's even possible to get a car loan within six months of your discharge.

The potential drawbacks of debt consolidation include the temptation to rack up new debt on credit cards that now have a $0 balance and the possibility of hurting your credit score with late payments. Also note that the best personal loans go to consumers with very good or excellent credit, so not everyone can qualify.

Debt consolidation puts multiple debts into a single account to make your payments easier. Debt consolidation can lower your credit score temporarily, but your score will improve if you make payments on time. Other tools like debt management plans and bankruptcy can help you manage debt.

Debt consolidation is ideal when you are able to receive an interest rate that's lower than the rates you're paying for your current debts. Many lenders allow you to check what rate you'd be approved for without hurting your credit score so you can make sure you're okay with the terms before signing on the dotted line.