Pros and Cons of a Credit Repair Loan

A Credit Article Contributed by Brandie King

Introduction to Credit Repair Loan

A credit repair loan, otherwise known as a debt-consolidation loan or a home equity loan, may be the solution to your debt troubles. Then again it may not be what you are looking for. The first thing that you should understand is this should only be used if you have tried all other methods for fixing your credit, short of bankruptcy. You should also not use this option if you are not willing to change the way you think about money and the way that you spend it.

If you aren't willing to do this then taking out a credit repair loan will not do you any good because afterwards you will end up right back in the same situation as before.

This article will discuss the pros and cons of a credit repair loan so that you will be informed enough to make a decision as to whether or not you wish to use this type of debt management solution.

Pros of a Credit Repair Loan

One of the main purposes of getting this type of loan is to lump all of your monthly debt payments into one single monthly payment. This makes it much easier to keep up with what you are supposed to pay each month. The types of debts that are normally included in this type of loan are unsecured debts, such as credit cards, lines of credit, unpaid medical and legal bills, and student loans, just to name a few.

Another pro is that with the most common type, a home equity loan, your interest rate will tend to be lower because it is a secured loan. Also, your single monthly payment is usually less than your separate payments were because of the lower interest rate. You will only have one creditor (whomever you got the loan through) instead of multiple ones, and the interest paid on a this loan is tax deductible in some cases.

Cons of a Credit Repair Loan

For some people a credit repair loan does nothing more than make it easier to rack up more debt. This is because, after consolidating debts, credit card accounts are reset and usable again and people are unwilling to change the spending habits that got them into this situation in the first place.

One of the major cons of this type of loan is that most mortgages have a length of 10 to 30 years, which means that after consolidating your debt and therefore having it included in your mortgage, it will take you a lot longer to pay it off. You may also end up actually spending more in the long run on interest payments since you will be paying for a much longer period of time.

And, perhaps worst of all with a credit repair loan, you are risking the loss of your house if you don't make the payments, which is due to the fact that you have to use your house as collateral.