Does Debt Consolidation Close Credit Cards? What You Need to Know

Have you got a lot of debt? It can be challenging to keep track of payments and balances on outstanding debts between credit cards, student loans, and auto loans. Debt consolidation can be a great way to get your debts under control. But if you’re wondering whether you can keep your credit card accounts open after consolidation, the answer is sometimes.

Debt consolidation loans usually let you keep your credit card accounts open. However, some debt relief programs will close credit cards. It all boils down to the approach you take. 

Are you eligible for debt consolidation?

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Pro tip: All of these methods work best for unsecured debts like credit card bills, medical bills and some private student loans. You probably don’t want to consolidate secured debt into unsecured debt unless you’re facing a dire situation, like car repossession.

Debt relief that closes credit card accounts

Before you decide how to deal with your debt, it’s important to figure out what works best for your financial situation. These two options will work best for borrowers with fair to poor credit who may be better off having some of their credit card accounts closed.

Debt settlement 

Going the debt settlement route involves negotiating to settle your debts in either a term or lump-sum payment that’s less than the total amount you owe. You can negotiate the settlements yourself, or you can hire a for-profit debt settlement company. Debt settlement for credit card debt will always cause the credit card account to be closed. A credit card company will not allow you to settle credit card debt and keep the same account open. However, because most credit card issuers won’t settle debts until they’ve been charged off, it’s possible that your account may have already been closed by that point.

You shouldn’t have to pay a reputable debt settlement company any upfront fee. They charge a percentage of the total debt settled.

If you want to keep one of your credit card accounts open, leave it out of the settlement plan, and keep making the monthly payments to that account. Choose the one with the lowest balance possible.

READ MORE: Debt settlement vs. debt consolidation

Debt Management Plan

A Debt Management Plan is designed by a nonprofit credit counseling agency to help you get your financial situation under control. The credit counselor will contact your creditors to try to get your interest rates lowered, and you’ll set up a payment plan. Any credit card accounts that are included as part of the Debt Management Plan will be closed, with the exception of one card that you can keep open in case of emergencies. The credit counseling agency will charge a small monthly fee to set up and maintain your Debt Management Plan.

READ MORE: Debt settlement vs. debt management

Two types of debt consolidation that don’t close credit cards

Credit card debt consolidation can be an effective way to pay off existing debt. Debt consolidation allows you to keep your credit card accounts open and may potentially improve your credit score while you work on your debt payments.

Balance transfer credit cards

Credit card balance transfers move high-interest-rate debts onto a lower-interest-rate credit card with another lender. The reason they’re such a great debt consolidation tool is that many credit card issuers make promotional offers to lure new clients. Many of these offers include a period where you’ll pay no interest on any debts transferred to your new account. These introductory offers usually last anywhere from 12 to 21 months, and this interest-free introductory period is a great way to make significant progress in repaying your debts.

Not only will your current credit card accounts stay open, but any new credit card accounts you open may also increase your creditworthiness and improve your credit score by lowering your credit utilization ratio. You will have to pay a balance transfer fee to move your credit card balances to your new card. These fees range from about 3-5% of the balance transfer, making it a far better option than paying the exceptionally high interest rates charged by some lenders and credit card issuers.

If you are near your credit limit on your credit card accounts, a balance transfer card can be the perfect way to get back on track.

You will typically need excellent credit to qualify for this. Most credit card issuers will not allow current customers to transfer debt between two different accounts with the same lender. In order for a balance transfer to work, you’ll need to open an account with a lender with which you currently have no debt.

READ MORE: Best balance transfer credit cards

Debt consolidation loans

With a debt consolidation loan, you apply for a new, larger loan, ideally with a low interest rate. You then use those funds to pay off your other debts, consolidating them into one loan with one monthly payment. In the right financial circumstances, debt consolidation can provide a range of benefits.

Debt consolidation loans will require a credit check and strict guidelines on your repayment terms.

Debt consolidation loans will require a credit check and strict guidelines on your repayment terms. The best choice for you depends on your debt, credit history, payment history, and financial situation. However, there are plenty of lenders who issue debt consolidation loans for borrowers with bad credit.

The best loan choice for you depends on your debt, credit history, payment history, and financial situation.

READ MORE: Simple ways to consolidate credit card debt

Can you afford a debt consolidation loan?

This is a serious question you must weigh before pursuing this option. Whether you use a balance transfer credit card or a debt consolidation loan, you must have the funds available to make the monthly payment. You also must have the discipline to keep yourself from racking up more debt on your now-empty credit cards.

If you’re considering debt consolidation, sit down with all of your monthly bills and obligations and realistically assess what you can afford. Does the loan you’re being offered fit that budget? If the answer is no, then debt settlement may be a better solution for you.

If you want to proceed with debt consolidation, here are some loan options to consider.

READ MORE: How debt consolidation works and best loan options

Personal Loan

If you have acceptable credit, a personal loan could be a great consolidation option. The loan amount you’re approved for and loan terms will depend on your credit score and debt-to-income ratio.

These loans can have extremely high interest rates for borrowers with less-than-perfect credit scores. If you have good but not great credit, it may be worth checking with a local credit union to see if they offer better loan terms.

READ MORE: Does debt consolidation close credit cards

Home equity loan or home equity line of credit

A home equity loan or home equity line of credit (HELOC) allows homeowners to borrow against the available home equity. The loan amount is based on the difference between the home’s current market value and how much the homeowner still owes on the mortgage. Home equity loans tend to be fixed-rate and provide a lump sum payment to the borrower, which is repaid over a period of up to 15 years. With home prices currently at record prices, you may have more equity in your home than you think. And though mortgage refinance rates are currently on the high side, they’re still considerably lower than what you’d pay for a personal loan.

Just be careful not to borrow more than you need to ensure that you can make your loan payments. These are considered “second mortgages,” so you’ll make your initial mortgage payment, then a separate loan payment. Missed or late payments could jeopardize your home and increase the risk of foreclosure if you don’t make on-time payments by the monthly due date.

The loan interest could even be tax deductible if you use it to pay for home repairs or improvements.

READ MORE: How to qualify for debt consolidation in six easy steps

Cash-out refinance

In a cash-out refinance, you refinance your mortgage by applying for a completely new, larger mortgage. You use the loan’s funds to pay off your existing mortgage, then you keep the difference. You’ll then use the leftover cash to pay off your other debts.

In this instance, you aren’t simply taking out a loan against your home’s equity. Because you’re getting a new loan, you will only have a single payment, but you will have to meet all of the lender requirements to qualify for a new home loan, and you’ll have to pay a new set of closing costs.

READ MORE: Debt consolidation pros and cons

How consolidation affects your credit score

Debt consolidation can have a varying effect on your credit rating. When credit cards are closed, it is not uncommon for your credit score to go down. Your score drops because you now have less overall credit once a card closes.

This is why debt consolidation will sometimes improve your credit score, while debt settlement and debt management plans may initially cause your score to decline.

READ MORE: How does debt consolidation affect your credit score

The bottom line

When weighing how to deal with your debt, there are plenty of factors to consider, one of which is whether you’ll have to close your credit card accounts. But don’t make this your priority. Whether or not your accounts are closed, taking action now will help get your credit score back on track so that when you eventually need a new loan or credit card, you won’t have to worry about whether you’ll qualify.


What is the Difference Between Secured Debt and Unsecured Debt?

Secured debt refers to a loan that is backed by collateral, which is an asset that the borrower puts up as security. If the borrower defaults on the loan, a lender can seize the collateral to recover the amount owed. Examples of secured debt include mortgages and car loans.
Unsecured debt is not backed by collateral. Instead, it is based solely on the borrower’s creditworthiness and ability to repay the loan. Examples of unsecured debt include credit card debt, personal loans, and student loans.

How Do I Check My Credit Report?

Follow these steps:
1. Visit, which is the only website authorized by law to provide free credit reports from all three major credit bureaus: Equifax, Experian, and TransUnion.
2. Click on “Request your free credit reports”
3. Fill out the online form
4. Choose which credit reports you would like to receive
5. Answer a few security questions
6. Review your credit report(s) carefully, checking for any errors or inaccuracies. Check your personal information, account information, and payment history for accuracy
7. If you find any errors, follow the dispute process that’s outlined on your credit report
You are entitled to one free credit report from each bureau every 12 months.

What’s the Difference Between a Hard Inquiry and a Soft Inquiry?

A hard inquiry occurs when a lender or creditor requests your credit report in order to make a lending decision, such as when you apply for a credit card, loan, or mortgage. Hard inquiries can potentially lower your credit score by a few points and remain on your credit report for up to two years.
Soft inquiries do not affect your credit score or credit report. They occur when you check your own credit report, when a lender pre-approves you for a credit offer, or when a potential employer or landlord requests your credit report as part of a background check. Soft inquiries are not visible to lenders and do not impact your ability to obtain credit in the future.

How Does Debt Consolidation Affect Credit Scores?

Debt consolidation can hurt or help your credit, depending on a few factors. By opening another new account from the debt consolidation, the average age of all your accounts will be lowered, which can negatively impact your credit history.
The credit inquiry from the hard pull can also lower your score, and higher credit utilization also reduces your score.
But it could also raise your score if the loan lowers your credit utilization and you make all your one-time payments on time, making this positive for your payment history.

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