(RepublicanDaily.org) – While credit consolidation and credit repair can both be very beneficial to those trying to rebuild their credit, they are not the same. Most people do not realize this and can get themselves into trouble or make a wrong decision. Understanding the nuances of each makes it easier to choose the right one for your personal situation.
Credit Repair vs Debt Consolidation
Credit repair is the act of trying to recover and fix a bad credit score. This can be because incorrect information on your credit report is disputed to the credit bureaus. The Fair Credit Reporting Act (FCRA), passed in 1970, requires that the information on your credit report be true and accurate, or it will be deleted. Therefore, you can report these errors and have them removed from your report. Credit repair is also important if you have been a victim of identity theft.
Debt consolidation, on the other hand, is a type of loan that involves combining your various debts and liabilities into one personal loan. This loan is then paid down over time. Credit card debt, student loans, car loans, or medical bills are often included in debt consolidation.
The explanation can be confusing with all the technical terms, but don’t worry because it’s actually very straightforward. Let’s break it down:
Pros & Cons of Credit Repair
Pros:
- This process can help you improve lower credit scores over an extended period of time.
- Credit repair can be helpful for those who struggle with incorrect information on their credit reports. This can be the result of reporting errors or identity theft.
- Credit repair services can do all of the hard work for you, so you don’t have to spend hours on the phone (unless you enjoy pre-recorded text discussions, of course).
- Credit repair services tend to have more bargaining power and greater knowledge of dealings with credit and debt agencies.
Cons:
Credit repair can be a long and complicated process, especially if you’re trying to do it all yourself.
- There may be costs associated with hiring credit repair services.
- The credit repair process does not come with a guarantee.
Pros & Cons of Debt Consolidation
Pros:
- Lower Monthly Payments – Your monthly payment will likely be smaller depending on the terms of your new loan.
- Fewer monthly payments – Instead of having separate payments each month, you pay one payment to the same company each month.
- Interest – With a lower-interest consolidation loan, you will likely save a lot of money over time. This can be very helpful for people who have a lot of loans or credit card debt. You can use the money you save to make more payments and pay them off faster.
- Credit score – By paying off your revolving debts, like a credit card, you can lower your credit utilization score, or “credit umbrella.” This can help improve your credit score. It is recommended to have a 30% or less credit utilization rate.
Cons:
- Applying for a debt consolidation loan can temporarily drop your credit score because lenders must perform a hard credit check to secure the loan.
- You may need to have a decent enough credit score to qualify for a debt consolidation loan.
- If your credit hasn’t improved since you applied for your original credit card or loan, your interest rate may stay the same or even be higher.
- Debt consolidation can include additional fees such as origination fees, closing fees, balance transfer fees, and of course, annual fees. While these fees can usually be included in the final loan amount, they add to the total cost of the loan.
Ultimately, you need to learn as much as possible and make informed decisions about how to approach your credit situation. If you know how you want to handle this, don’t hesitate to contact a trusted credit repair service or debt consolidation service to explore your options. Remember, recovering your credit doesn’t have to be an ordeal. There are ways to improve your credit score and get back on your feet.
Copyright 2023, RepublicanDaily.org
