Do You Have To Close Your Credit Card Accounts When You Get a Debt Consolidation Loan?

The short answer is no, you don’t have to close your credit card accounts when you get a consolidation loan. Paying off a credit card with a consolidation loan, or with a normal payment, is a great accomplishment. And it may actually help your credit score to leave the credit card open with a zero balance. But if having it open will tempt you to rack up more charges, then closing it may be beneficial. 

Using a consolidation loan to pay off your credit cards can be a great idea. If you’re able to get a personal loan with a lower interest rate than the credit card debt, then you could save money. Plus, consolidating your credit card debt into one new loan is much easier to manage. It may help with your monthly budget to only focus on one loan payment instead of several. 

If you have a decent or good credit score, then you may be able to get a good interest rate on a bank loan or credit union loan. And since credit card interest rates tend to be higher than rates from banks and credit unions, this could save you some money. Even if you can’t get a better interest rate, there’s still some benefit to consolidating your debts. 

So what do you do once those credit cards are paid off using the new consolidation loan? The best thing for your credit score is to actually leave the accounts open with a zero balance. This tells the credit bureaus (the companies that determine your credit score) that you have credit available to you but you’re not using it. This looks good and could potentially raise your credit score. 

This is called your credit utilization ratio. It’s the measure of how much credit is available to you, versus how much you’re actually using. But as we mentioned, if leaving these credit accounts open will just lead to more credit card debt, then it’s probably wise to close them. It may not be worth the slight credit score increase if you’ll be too tempted to use those cards in the future.