When a person in Arizona has a mountain of bills they are unsure how to handle, they might consider debt consolidation. One common question that regularly comes up is the effect that debt consolidation will have on a person’s credit. While every situation can vary, certain tips might be able to help a person improve their credit when they consolidate their debts.

The person may look for a loan that provides the best possible options, including the lowest interest rate possible. However, if their credit score is not as high as it could be, finding a good interest rate could be a challenge. Places to look include peer-to-peer lenders, a bank, credit union or other online sources. Before trusting a lender, it’s best to investigate their reputation to make sure the deal isn’t a scam. Debt consolidation of credit cards might even help a person’s credit in the long run. However, new loans usually cause a short-term drop to credit scores.

A debt management plan differs from debt consolidation because they are offered through a credit counseling service and don’t truly bundle up a person’s debt. The credit counseling agency negotiates reduced payments with the client who then makes one payment to the credit counseling agency. A debt management plan might be a viable option for some consumers. Usually the company makes the person close all credit card accounts, which could lower credit scores for the short term.

When a consumer is in debt over their heads, they might consider debt consolidation or debt management in order to reduce their monthly outlay. A bankruptcy attorney might be able to review the advantages that filing for bankruptcy protection offers.

Source: MSN Money, “Will debt consolidation help or hurt my credit?“, December 27, 2013