How to repair bad credit using debt consolidation

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How to repair bad credit using debt consolidation
2 years ago
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Most tips about how to fix bad credit usually include finding ways to pay a little extra off any overdue balances to help bring them back up to date. Unfortunately if you had that little extra cash each month to put towards debt repayment you probably wouldn't be in the situation you're in now.

Most people struggling with bad credit tend to have multiple accounts outstanding. This can make keeping up with all the different repayments tricky. Rather than try to work on each individual smaller account, you might consider reconfiguring your finances so that it's much easier for you to get back on track financially at the same time as fixing your bad credit history. Here's a quick look at how you can improve your credit score using debt consolidation loans the right way.

1. Add Up Totals
Take a few minutes to add up how much you owe on your total unsecured debts before you go searching for a debt consolidation loan. Your unsecured debts are things like credit cards, store cards, pay day loans, personal loans or hire purchase agreements. You should also know how much you're currently paying for your interest charges on each of your accounts, including any penalty interest or overdue charges.

2. Debt Consolidation Loan Shopping
Once you know how much you're already being charged in interest it's much easier to find a debt consolidation loan that charges much lower rates. Even if you have terribly bad credit already, even the higher rates charged on your consolidation loan will still be much lower than the penalty rates you're paying on your overdue credit cards and other accounts.

3. Improve Cash Flow
Shop around and compare some debt consolidation loans from various lenders that will help you roll your outstanding balances together into one convenient new balance. In most cases, the new repayments on your debt consolidation loan will be much lower than the amounts you were paying on your other outstanding debts. This should mean you have to find a little less money each month to make the payments, which makes your cash flow easier.

4. Check Old Balances
A large part of fixing bad credit is to find ways to repay any unpaid balances or past due accounts listed on your credit report and fix any other financial problems that may have been listed by your creditors. Once your debt consolidation loan has been approved and your balances are all rolled together into one easy loan, check that your old accounts are really paid out and closed. Call your creditors and ask them to list the account as Paid in Full on your credit report immediately. This will help to increase your score.

5. Change Repayment Dates
Your new debt consolidation loan might have much lower monthly payments, but many people still find themselves struggling to keep up with this amount when payment day comes around. There is an easier way to keep up with the monthly payments that will also help improve bad credit at the same time.

Simply divide your monthly payment by 4 to find the weekly amount you should pay. This amount is much smaller so it's much easier to work into the budget. Set up an automatic direct payment method or direct debit payment so this amount is automatically taken out of your pay check each week. When you pay a little bit towards your total payment each week you're less likely to fall behind again. It's easier to budget for a smaller amount and you're making more frequent, smaller payments off your debt, which means you'll be reducing your debt balance. This positive payment behavior will be reported on your credit report.

6. Reduce Debt Balances
Another important part of fixing bad credit is trying to find ways to reduce your debt levels. Your credit score is calculated based on the amount of debt you owe. When you pay a small amount of money every week that adds up to the monthly payment the bank expects, you should find that you're chipping away at your balance every week. This can help to reduce the amount of interest you're charged, as most accounts are charged interest on the balance owing. By reducing the balance every week your interest payments drop more quickly.

You may also find that some months don't just have four weeks in them. Grab a calendar and see how many Thursdays or Fridays are in each month. This occasional extra payment will put you ahead with your repayments, which reflects well when you're trying to fix bad credit.

7. Extra Repayments
The other big benefit to paying your debt consolidation loan in smaller amounts on a regular basis is that your bank may report that you're making small extra repayments, even though you're still only paying them the amount they asked for. Remember, all you need to do is divide your monthly repayment amount by 4 and set up an automatic payment plan to pay this every week on the same day.

The bank's computers are set up to report to the credit bureaus about your monthly repayment conduct. By paying four payments every month you're technically making more payments than they asked for so this should be reported positively as your conduct improves.

There are many ways to fix bad credit but the methods that involve you learning how to take responsibility for your own financial situation and reworking your financial obligations will also be the most helpful ways to improve your credit score. You'll be learning ways to stop yourself from getting back into the same situation again in the future and you'll be fixing your bad credit at the same time.
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