Credit Repair

What we mean by credit repair here is not about repairing a credit rating but repairing a credit standing.  What's the difference?  A credit rating is the gauge of how you've paid off debts in the past.  A credit standing is the amount of available credit you have and the amount of credit you are able to get.  It can be a difficult position to no longer have access to a sizable credit limit.  Repairing your credit standing is a way to get back the freedom of spending on credit.   Applying for new credit is one option, but this may not be possible if you've already got a sizable debt load.

There are several credit repair strategies that you can use to rebuild your credit standing. The three most commonly used credit repair strategies include:

• Debt consolidation
• Debt settlement
• Debt counseling

The method you select will be based on your current financial situation and your future income prospects.  Let's take a look one by one. 

Debt Consolidation

Your first credit repair option is debt consolidation. This option is normally done by people who own their own homes who have significant equity. Debt consolidation does not erase your debt, but instead reorganizes it under more favorable interest and tax conditions.  There are other types of debt consolidation as well. Depending on the size of your debt, you could also apply for a personal bank loan and then use those funds to pay off your debts.  This is not always a solution for very large debts, but it is a possible solution.  There are also student loan consolidation programs which consolidate outstanding student loans into one, more-manageable loan.  The main idea with consolidation is to keep the interest on the new loan below the previous interest.  However, just being able to pay off one loan instead of several can be more manageable and help avoid defaults.  

Debt Settlement

The second credit repair option is debt settlement. Debt settlement does eliminate your debt, but rather shrinks the size of the debt overall.  The catch is that you will need to pay off the agreed settlement amount in one lump sum payment, rather than over time. If this is impossible then you will need to work with a special debt settlement non-profit organization that is willing to work with you to pay off your settlement in installments.  As debt settlement can freeze your current credit accounts, this can be a drastic solution if you rely on credit.  Your accounts will be frozen and you will find it harder to apply for new loans.  If at all possible, paying in one lump sum is most ideal because then you'll have use of available credit - though this may need to come from a different source than your original credit line.    

Debt Counseling

Your next option is debt counseling. Think of debt settlement as all of the above.  A debt counselor will examine your financial standing and determine the best possible solution.  This may amount to simple budgeting, or something more expansive, such as debt settlement or debt consolidation. The counselor will take on the negotiations with creditors him or herself, which is often easier and more effective than trying to negotiate on your own.