Using Loans to Repair Bad Credit

Being broke ain’t no joke.  Sometimes the best way to get out of a debt is to actually borrow more in the form of a debt consolidation loan.  Despite my joking use of the first line, a debt consolidation and loan restructuring are absolutely not laughing matters.

♦  Debt consolidation

Debt consolidation is one of the main ways to fix a bad credit score.  The idea is that you take all of your bad credit and get another loan to pay it off.  Sometimes you may be able to settle some loans for a percentage of the amount due if you can pay it off all at once.  Consolidation therefore can be a viable option.

♦  Interest rates

If you can manage to get a consolidation loan that has a lower interest rate than the ones you are having an issue with hopefully can even lower the price further.  The important part about consolidation loans is that you actually get it low enough to where you can make all the payments.  Consolidating and still missing payments will only hurt your credit more.

♦  Term of the loan

Debt consolidation can be a bad thing if it ends up increasing your total debt.  Let’s say they take your loans and restructure them so you pay less every month.  That is great.  But if they significantly extend the “term” of the loan then you can end up paying a ton more in the long run.  It is possible that you may HAVE to restructure this way to be able to make the payments, but you should do it with open eyes and as a last resort.

♦  Credit Card Settlement

Consolidation helps repair our credit rating in two ways.  For one all of your delinquencies and loans get marked “PAID” ; that gives you  a bump right there.  For a second reason every month that goes by and you make your consolidation loan payments without any negative reports of missed payments  works to further raise your credit rating, putting your credit issues into the past.

♦  Bad Credit Loan.

If your finances are bad you can apply for a bad credit loan.  Be warned these are loans with high interest rates.  There is need to be careful with these.  You do not want to be paying off the interest on these.  Make purchases with the card when you HAVE the money only.  Pay the card down and keep the card balance very low or zero.  Use it and pay.  Use it and pay.  Overtime this shows as an active credit card that you are paying regularly on.  This shows creditors that you have begun to reform you ways.  At this point you can get a card with more reasonable interest rates.  Do the same thing.  Do not use it as a form to buy stuff you cannot afford but simple as an alternative to cash, that you quickly replace.

Using credit to fix bad credit is serious business.  If your spending habits are still bad all you can do is dig yourself into a deeper hole.  But if you have reformed it can do wonders for restoring your credit rating to a reasonable level.