Older man looking down at bills | Jose Luis Pelaez Inc/Getty Images

Dear Debt Adviser,
I have about $50,000 of debt on credit cards. My credit rating is still high. I am thinking about a debt consolidation loan. Will that adversely affect my credit rating?
— DT

Dear DT,
The cliche about rearranging the deck chairs on the Titanic came to mind when I read your question. Debt consolidation won’t address the real problems that may sink your credit rating!

SEARCH RATES: If you’re considering a personal loan for debt consolidation, first check out the rates at Bankrate.com.

Jose Luis Pelaez Inc/Getty Images

Moving the balances of your credit card accounts into an installment loan for purposes of consolidation may cause a slight drop in your credit score. The principal reason is you will have a new inquiry and huge installment loan appear on your credit report, even though you also will have much lower debt-to-credit ratios on your credit cards. The potential underwriting risk that you present to a new lender is measured in conjunction with your credit score and will now have to incorporate that you have the chance to begin adding to your credit card balances again. And the fact that many people do just that is why the action will temporarily cut your rating.

For the record, and for those who don’t know the difference, a credit rating and a credit score are 2 different things. A credit score is derived from items reported in your credit file. It uses a complex mathematical algorithm to come up with a score that predicts whether you are more or less likely to default on your next loan. A credit rating is assigned by a person who looks at issues beyond your credit report before deciding how creditworthy you are. These issues include income, job stability, your ability to use dormant credit lines and more.

I want you to concentrate on your overall financial health rather than on a score or rating. If your financial health is strong, the measures will reflect it. The real questions to be answered are: Why do you have such a large amount of credit card debt? Have you started an emergency savings account of 6 to 12 months’ worth of living expenses, so you won’t have to use credit for unexpected expenses? Do you have a workable spending plan that includes putting money aside for future financial goals?

If you don’t know why or how you amassed $50,000 in credit card debt, begin there. You need to understand how you got in that situation if you are going to avoid getting there again and again. Only then will you steer clear of the financial disaster of racking up a new 5- or even 6-figure debt load after you consolidate.

Funding an emergency savings account should help you better manage unexpected expenses as they occur, but if your main problem appears to be that you’re extending your income with credit, you need a spending plan. You need a plan that brings your expenses in line with your income and one you will commit to follow. Without taking these positive money-management steps, consolidating your debt will not help your credit rating in the long run but could create the potential for disaster instead.

In addition, your spending plan will help you determine if you can afford to consolidate your credit card debt. With your good credit rating, let’s say you qualify for a personal loan at 10% interest. You would need to pay $1,062 per month for 5 years to pay off your $50,000 in credit card debt. Should you need to cut back on expenses in other areas to afford the consolidation loan payment, be sure you’re willing to make the needed sacrifices for the entire 5-year repayment period, and be doubly sure you don’t use those cards unless you can pay them off in full each month!

RATE SEARCH: Before taking out a personal loan, compare rates at Bankrate.com.

Good luck!

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