Using Debt Consolidation to Repair Your Credit: What Options are Available?

A Credit Article Contributed by Brandie King

Using debt consolidation to repair your credit can be a good move, but there is one vital thing that you need to understand before considering it. Consolidating your debts will not erase them. Repairing your credit in this way will only lump all of the payments into one single monthly payment. Be sure that you fully explore all of the options available to you regarding consolidating your debt before doing it so that you can choose the option that is right for you and that fits your lifestyle.

What Can Be Included in Debt Consolidation

There are several different types of debts that can be included when you consolidate your debts. These include credit cards, student loans, auto loans, medical and legal bills, personal loans, utility bills from a previous residence, and more.

Debt Consolidation for Credit Repair: Transferring Balances Between Credit Cards

If you have a lot of high interest rate cards and you are having trouble keeping up with paying the bills on them then you should consider the possibility of consolidating all of them into one or two monthly payments. You can do this by obtaining one or two credit cards that have low interest rates, and then transferring the balances to them from your higher interest rate cards.

Remember these two things to help keep you out of trouble when using balance transfers to consolidate your debt. The first thing you need to remember is that you have to keep paying on the old credit cards until you get notification that the balance transfer has gone through. The second thing that you need to remember is that after you get the balance transfer notification you have to make sure that you call your old credit card companies and verify that they have received the payoff amounts.

Debt Consolidation for Credit Repair: Home Equity Loans

You need to know the definition of home equity before you take a home equity loan into consideration. Home equity is your financial interest in a property and is the difference between the fair market value and the amount still owed on its mortgage. A home equity loan, also known as a second mortgage, is where you refinance your house and use the built up home equity to pay off your other debts. Make sure to keep in mind that you are basically using your house as collateral when you get a home equity loan. That means that if you default on the loan you will lose your house, so be sure the make the payments on time for your home equity loan.

Debt Consolidation for Credit Repair: Debt Consolidation Loans

This is where you get one single loan to pay off your other existing debts. This option also provides you with the opportunity to have one single lower monthly payment instead of multiple payments on separate debts. Do not get a debt consolidation loan confused with a home equity loan though. A debt consolidation loan has nothing to do with your home, it is completely separate from and unrelated to it.