Credit problems can happen to anyone, but once you're back on your feet, your first step should be to pay down your debt. Credit repair loans, also known as debt consolidation loans, are one of many tools available to help manage debt. The following are five common features of debt consolidation loans.
Credit card loans offer flexibility and low minimum payments. While it may be tempting to pay less, you will have a greater amount of accrued interest and fees to be paid in the future. Debt consolidation loans do not allow for payment flexibility, which forces you to pay debt down faster or face repercussions, such as a delinquency on your credit report.
Credit repair loans generally offer lower interest rates than credit cards. With lower interest rates, you can pay off the same amount of debt with the same payments you typically make each month, but the payoff period will be shorter because you are paying a higher percentage of principal versus interest.
Paying off credit cards decreases interest paid on future purchases
If you carry a $1,000 balance on your credit card and then purchase another $100 of goods during the month, you will pay interest on $1,100. But, if you transfer the $1,000 balance into a credit repair loan, new purchases can be paid off without incurring additional interest. Keeping credit card balances low also helps repair damaged credit because it shows creditors that you are able to manage open credit lines. Plus, the interest savings from the lower rate consolidation loan frees up funds to cover new purchases.
Pay off debt faster
Depending on how you structure your debt consolidation loan, you may be able to pay off debt faster. Paying the minimum balance on a credit card often delays full repayment by years, or even decades. By transferring balances to a consolidation loan, you will pay off balances over a time period of your choosing, which can be significantly faster than if you are paying minimum credit card payments.
Fewer phone calls from debtors
Fewer outstanding loans equals less administrative work required to manage your debt. By closing unneeded credit cards, you also decrease the number of outstanding accounts on your credit report.
When applying for a credit repair or debt consolidation loan, stick with a reputable bank or financial company. Research the lender with the Better Business Bureau of Atlanta. Also, don't forget to ask about added fees and factor these costs into your financial analysis to make sure your really will benefit from transferring your balances away from existing accounts. If you have specific questions about repairing your credit or are looking for recommendations for nearby debt consolidation companies, contact an Atlanta area financial advisor.