Does Debt Consolidation Close Credit Cards? (2024)

No, you don’t have to close your credit cards when you go through the debt consolidationprocess, unless you are using a debt managementprogram. Most methods of credit card debt consolidation – including debt consolidation loans, balance transfer credit cards, and home equity loans – do not result in your accounts automatically being closed.

Impact of Debt Consolidation on Existing Credit Cards

Here’s How Debt Management Programs Affect Credit Cards

When you enroll in a debt management program, your credit counselor works with your creditors to reach a compromise on your debt. You in turn make monthly payments to your credit counselor, who disburses the money to your creditors once an agreement is reached.

On the plus side, your interest rates are lowered or cut completely. But as a concession to your creditors, you typically must agree to let them close or freeze your accounts so you cannot make any new charges on them. Additionally, you cannot open any new lines of credit until you have completed your program.

How to Keep Your Credit Cards Open During Debt Consolidation

If you want to keep your accounts open during the debt consolidation process, you can pursue consolidation in a few different ways. By tapping into home equity or taking out a 401K loan, you are borrowing money you already have through the equity in your home or through your retirement account.

With a balance transfer card, you are simply opening a new credit card account to consolidate your debt. Essentially, the chances of keeping your credit cards open through the consolidation process are higher if you are not working with the previous creditors.

Ultimately, it’s a good idea to keep at least one credit card account open, even if you don’t use the card to make purchases. That is because simply having an open account in good standing willbenefit your credit score. Just make sure to keep your spending in check. After all, the goal of debt consolidation is to get out of debt.