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            Credit Consolidation

Credit consolidation can be very tempting for people who are desperate to rid themselves of their debt. After all credit consolidation sounds like a good deal: one payment to one company. This single payment can be to a loan that you took out to cover your existing debt, to a credit counseling or credit consolidation company or to a credit card that you got with a high enough limit to pay off the rest of your debt. It sounds too good to be true and as is usually the case with such deals: it often is actually too good to be true. Here is the lowdown on credit consolidation and why it should be avoided.

If you decide to try for a loan or a balance-transfer credit card, you should know the risks. Often these loans and credit cards come with a ridiculously high interest rate and you can end up paying up to one and a half to twice as much as you originally owed just from the interest alone. Also, the minimum payment on these loans and credit cards will be more than your original minimum payments to your original accounts. If you were having problems making those payments, you will have trouble making the one larger payment.

Credit consolidation companies are often out to make a profit off of the backs of desperate people. These companies promise that for a low introductory fee (which is often more than the minimum payments you could make on your debt accounts for at least two or three months) they will take over your debt. They promise to work with your original debtors and come up with an amount for your total debt and then you make payments to the company who then turns around and disburses the payment to the original debtors. These companies often promise that they can cut your debt in half, when really what they do is increase your credit risk to future companies.

You see, just because you get a loan or a credit card or work with a credit consolidation company that doesn't mean the original debt accounts suddenly get wiped off of your credit history. In fact not only will the original accounts still be listed, but your credit history will clearly show the balance transfers and the new account (loan, etc) that is maxed out within a few days of opening it. This is an incredible blow for your credit history to take. Also, in many places working with a credit consolidation company is basically the same thing as declaring chapter seven bankruptcy. Bankruptcy is the worst thing you can ever do to your credit history.

Credit consolidation can be very tempting, especially if you are desperate to get rid of your debt. Unfortunately, the promises are mostly fronts to lure you in so those companies can make a profit off of you. The best way to fix your credit history is through a steady repayment history and making sure your credit report is free of mistakes.

Credit in Minutes Tip #1

Stay on top of your credit report. Most credit reports contain errors. Make sure you check your credit report every year (you get one free credit report every twelve months) and if there are errors make sure to challenge them with the reporting credit agency. Credit agencies are required to investigate each and every challenge that gets reported.

Credit in Minutes Tip #2

Just because you qualify for all of those credit cards does not mean you should get them. A person with too many credit cards looks sketchy in the eyes of a potential creditor. Think of it this way: if a person is financially stable does he or she need ten different credit cards? Wouldn’t just one or two suffice?

Credit in Minutes Tip #3

The best way to raise your credit score is to make all of your payments on time. It sounds too simple to be true, but that’s all there really is to it. Staying out of debt and/or making all of your debt payments on time will keep your score up where it should be.

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