Q. I am not in trouble with any of my creditors, but I have way too much debt. I'm thinking about a debt-consolidation loan but am worried that it would hurt my creditworthiness. Does it help or hurt to have one consolidated payment rather than paying on multiple accounts?
A. The actions usually associated with debt-consolidation loans--opening a new credit account and closing old accounts after using the debt-consolidation loan proceeds to pay them off--frequently will hurt a FICO credit score, said Craig Watts, spokesman for Fair, Isaac & Co., which created the FICO credit-scoring system. How much it will hurt depends on your situation.
It's possible, although not likely in your case, that the damage is worth suffering. If a debt-consolidation loan could help you get out of the hole faster, for example, then you might be willing to make the trade-off.
Most debt-consolidation loans do exactly the opposite, however. Not only do they stretch your payments out longer, meaning you pay more in total interest, but often they include high fees or other undesirable add-ons such as overpriced insurance.
You're usually much better off pursuing your own debt-repayment plan. Pay as much as you can on your highest-rate non-deductible debt. Make the minimum required payments on all your other debts until this highest-rate debt is paid off.
Then take the same amount of money and apply it to the next highest-rate debt. Continue working your way through your cards in this way until you're debt-free.