TransUnion: Debt Consolidation Usually Results in Improved Credit Scores and Better Overall Credit Performance

Chicago, Illinois-based TransUnion (NYSE: TRU), a company that provides credit reports and credit scores, released a study on October 30 in which it looked at what happens when consumers take out a personal loan to pay off their credit card debt.[1]

The study revealed that most of the consumers who consolidate credit cards are able to pay off most of their outstanding balances. The study also found that after consolidation, approximately 68% of consumers reported an improvement in their credit scores by an average of over 20 points.

On average, people who use debt consolidation loans are able to pay more than 58% of their outstanding credit card debts with their personal loans, the report noted. It added that debt consolidation helps bring credit card balances down from an average of $14,015 to around $5,855.  

The report further mentioned that more than 60% of consumers who consolidated their debt experienced a 60% drop in their card balances.

As noted in a press release:

“Participation in the consumer lending market is at a record high, with more than 19.6 million consumers carrying an unsecured personal loan through the first half of 2019. Consumer adoption of personal loans for debt consolidation has driven much of this growth, as consumers with heavy credit card debt often receive offers to consolidate their debt via a personal loan.” 

The release also mentioned that the rise in the number of consolidation loans has led to the misconception that such loans might be a “debt trap” for consumers.

TransUnion’s study found that the majority of people actually benefit from accepting such offers and end up performing significantly better on those products ­over an extended period of time.

Elizabeth Pagel, senior VP and consumer lending business executive at TransUnion, stated: [2]

“We are seeing a shift in consumer credit preferences toward streamlining bills into a single monthly payment. Personal loans offer a predictable payment plan with set terms and fixed rates.” 

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