Credit Card Debt Consolidation

If you want to pay off all your credit card debt at once, a debt consolidation loan or a balance transfer is an option.

A debt consolidation loan puts all your debts, including credit card and small personal loans, into one loan with one monthly payment. 

This can make your payments easier to manage and might reduce the overall interest rate you pay — but it can also affect your credit score.

Credit score impact

Applying for debt consolidation or a balance transfer is considered a new credit application, which can temporarily impact your credit score. 

If you combine your credit card debts and close your old cards, this might increase your utilization rate, which could negatively affect your credit score. 

For example: 

Rico had three old credit cards, and each card has a credit limit of PHP 2,500,000. 

After he consolidated his debts into a new card with a higher limit of PHP 5,000,000, he closed his old accounts. 

But because Rico moved PHP 4,750,000 of debt to the new card, he used up 95% of its available credit. 

If he had kept the old cards with their combined limit of PHP 7,500,000, his usage would only be 38% of his total credit. 

This high usage on the new card might lower his credit score because it's better to use a smaller percentage of your available credit.

Consolidation considerations

It's important to think about how closing accounts will impact your credit score, including changes to your credit use rate and the age of your credit history.

Important note

The guidance given here is based on information that was correct when published and is meant for learning only. It’s not legal or financial advice. For advice that fits your specific situation, talk to a professional advisor. Always look for the most recent information and rules on official websites.