(StraightNews.org) – Credit repair and debt consolidation can help people rebuild their credit, but they work very differently. Understanding the differences between the programs will help you discover which program is best for you.
Ok, So What’s the Difference?
People seeking to restore or correct poor credit can take credit repair steps. This includes disputing errors on your credit report. The Fair Credit Reporting Act (FCRA) requires that information on your credit report be wholly fair and accurate, or you can have it removed. Remember, there are three credit reporting companies, so it is necessary to check your score with each one. Credit repair also helps victims of identity theft restore their credit.
Debt consolidation entails combining all of your various debts into one personal loan. This lessens the amount of outstanding debt on your report. This loan is then paid down over time. Debt you can consolidate includes student loans, credit card debt, and medical debt.
These terms can seem confusing, but they don’t have to be. It is simple to understand and determine which program is right for you. Keep reading for a simple breakdown of the pros and cons of each method.
Pros & Cons of Credit Repair
- Credit repair is a good path for those struggling with errors on their credit reports.
- The process can help improve lower credit scores over time.
- You can hire a credit repair service to assist in correcting these errors, making it easier to fix your credit.
- Credit repair services have better negotiating powers and can deal with credit reporting agencies without drowning in confusing paperwork.
- Credit repair can be a long and complicated process to do by yourself. Even hiring a credit repair service can take time you may not have.
- There are fees associated with hiring a credit repair service.
- The credit repair process is not a guaranteed path to better credit.
Pros & Cons of Debt Consolidation
- Fewer monthly payments – Instead of having a bunch of separate charges to worry about, you pay one fee to the same company each month.
- Lower monthly payments – New loan terms and consolidated debt costs will likely result in lower overall monthly payments.
- Interest – A lower-interest debt consolidation loan can help you save quite a bit on interest over time. Those with several high-interest loans or credit card debts can have huge savings over time. This money can be used to make extra payments and pay down your debt even faster.
- Credit score – Consolidating your debt can reduce your credit utilization rate or “credit umbrella.” This helps to improve your credit score as the recommended credit utilization rate is 30% or less.
- You will likely need a decent credit score to qualify for a debt consolidation loan.
- Applying for debt consolidation loans will cause a temporary drop in your credit score because lenders will perform a hard inquiry on your credit score.
- Debt consolidation often involves additional fees. These fees include origination fees, balance transfer fees, closing costs, and annual fees. These fees don’t have to be paid upfront. Instead, they are added to the overall cost of your loan, increasing the total loan amount.
- If your credit has not improved since you acquired the initial debt, your interest rates can be the same or even higher than the original debt.
Ultimately, it’s up to you to learn as much as possible and then make an informed decision on how to approach your unique situation. Once you know how you want to handle it, don’t hesitate to reach out to a trustworthy credit repair service or debt consolidation service to explore your options.
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