Debt consolidation has gotten a bad rap from many people. There have been those who will tell you it is the same as filing bankruptcy. For those who are looking to reduce their debt to income ration and reduce monthly payments this information may scare them from considering debt consolidation.

The fact is that debt consolidation is nothing like filing bankruptcy. Debt consolidation shows you are taking productive actions to clean up your debt with your creditors. With debt consolidation you are paying back 100% of your debt where as bankruptcy is not paying back any of the debt.

Debt consolidation can affect your credit score in some ways and this greatly depends on what kind of debt consolidation you do.

Debt Management programs are designed for people to remove some excess debt. In most cases the agent will negotiate with creditors to get them to agree to accept a lesser amount as a payment in full. This is a common method for people who have gotten behind on their payments and are being covered in late fees or other penalties. This method does have a negative effect on your credit score. Any type of debt settlement will result in marks on your credit file that reflect poorly on you.

Obtaining a debt consolidation loan is the most proactive way to repay your debts. The loan will be enough for you to pay your balances in full to your creditors and stay in good standing. Your credit will be reflected positively and your credit score should not be affected.

The length of your credit history will have an impact on your credit score. The impact is a small one but when you are trying to obtain the best rating possible any little bit counts. If you pay off your creditors in full and close the actual accounts your credit history will be shortened. The older accounts will be the most effective for keeping open. You can still pay them off in full, just do not close them.

Before you buy a home or make any large purchase you should check your credit report as well as your credit score. You should monitor your score to check for changes any time you pay something off. You want to apply for the loan only after you have done a few things to get your score as high as possible.

Remember if you pay a creditor a settled amount that is less than was owed you will have a negative impact on your score. Paying the creditor in full without settlement will result in a positive affect for your credit score.

You should make sure your debt to income ratio is allowing room for another loan payment before applying for a loan. You need to pay everything on time, no late payments for at least 3 months before you apply. Keep oldest accounts open to ensure your credit history length is not shortened.

Debt consolidation can be a great way to reduce your interest payments each month. As long as you are not trying to get out of your debt and you are trying only to pay if off your credit score should be just fine.