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Credit Repair and Debt Consolidation – How They Work Hand and Hand to Restore Your Credit Score

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Sometimes, you may fall into the unfortunate situation of being in debt. Whether you have used your credit cards to make purchases that were too large or you weren’t making your payments in a timely manner, debt can happen to just about anyone.

If you are in that situation, you could certainly benefit from credit repair services and debt consolidation. It can help you to learn about how to be wiser with your spending and makes it easier to pay off your debt by taking all of your credit card debts and making them into one. In addition, credit repair and debt consolidation can help you to rebuild your credit score after it has suffered damage due to your outstanding debt. If you think these services are the right course of action to help you, it’s worth knowing how they work and how they work together to restore your credit score.

What is Credit Repair?

Credit repair is exactly as it sounds — it involves going through your credit reports to check for any erroneous information and having it fixed if there are any mistakes. Generally, there are many reasons why there may be errors on your credit report, such as human error in confusing you with another person who shares your name or has a name very close to yours; fraud if you have fallen victim to identity theft; or you have a spouse from whom you are separated or divorced and their information was mixed with yours. Not surprisingly, errors in your credit report can have an adverse effect on your credit score if they aren’t caught early enough. It’s important to regularly go through your credit reports from each of the three credit reporting agencies, TransUnion, Experian and Equifax and check them on a regular annual basis. If you find any glaring mistakes or discrepancies, immediately report them to the agency to have them deleted or corrected. You can do this yourself, but there are also credit repair companies that will perform the service for you for a fee.

How Does Debt Consolidation Work?

Debt consolidation is a service that is offered to individuals who are struggling with the burden of debt to multiple creditors. It allows you to get the total amount of money you owe reduced by taking all of your debts and combining them into one. The interest rates are reduced so that your total amount is lowered. This is done so that it makes it easier for you to pay back the debt you owe. Your creditors or lenders are willing to overlook the excess interest simply so that they can be paid back. Debt consolidation is freeing for many people who owe debt to multiple sources because it becomes one payment that is easier to pay off. There are both pros and cons to debt consolidation. In some cases, the advantages may outweigh the disadvantages.

Advantages of Debt Consolidation

  • You can improve your credit score by using a credit card with a lower interest rate. Often, debt consolidation may involve transferring the balances from your other, higher interest cards on which you have debt
  • Lower or fixed interest rate that allows you to pay less toward your debt each month
  • Allows you to more aggressively pay back debt and focus on credit repair
  • Allows you to skip having to schedule multiple payments every month
  • Helps you to avoid multiple late fees and bad credit as a consequence
  • Gives you possible tax breaks on interest on loans if you choose to use home equity or a second mortgage
  • Allows you to save money while you pay off your debt

Disadvantages of Debt Consolidation

  • You may have to pay more overall even though your interest rates are lowered
  • Interest rate may be high in spite of allowing you to pay less each month toward your debt
  • If you have a home equity loan you’re unable to pay back, you risk losing your home to foreclosure
  • Consolidating revolving credit debts can work against you by resulting in the accumulation of even more debt

Using Debt Consolidation with Lower Interest Rate Credit Card

One of the best credit repair options is debt consolidation with a credit card that includes an introductory zero percent APR. It allows you to have a lower balance to pay off. If the credit card balance is close to your credit limit, you can improve your credit score because your utilization ratio also improves. You may also want to consider using a loan against your retirement account to consolidate your credit card debt. This can improve your credit score because retirement accounts are not reported to the credit reporting agencies. Overall, credit repair and debt consolidation can greatly help to restore your credit score. The services allow you to eliminate the burden of overwhelming debt so that you can breathe easily again and feel better about your finances.