by Daniel Xiao Wang

Created on: January 05, 2010

Credit repair can be a long and difficult process, often showing little result for a lot of time and hard work. Depending on the extent of the damage that you are trying to repair one option may be to consolidate your loans and credit cards into a single, lower monthly payment with a lower interest rate.

Finding a low interest personal loan typically means that it will have to be a loan secured by some manner of collateral. A home equity line of credit typically allows the flexibility necessary to consolidate multiple debts and provides a very competitive interest rate. Other forms of collateral may include a vehicle, a bank CD, a savings account, or even securities (like stocks and bonds).

By offering collateral the risk to the lender is lowered and they will offer you a lower interest rate. The key here is to secure a loan large enough to cover all of your debts and with a rate lower than what your other debts offer.

Then use the new secured personal loan to pay off your other debts. The thing to remember is that you never get out of debt by taking out more debt. Just because you have paid the loans off with another loan doesn't mean that these debts have disappeared, you do not suddenly have extra money. The danger is that people often think it is now acceptable to go out and charge up their credit cards again. Doing this means that the method of credit repair they are attempting actually adds to their debt and puts them in a worse position than where they started.

Provided that you pay off all your loans and that the interest rate is lower now, after consolidating, than it was before means that you will now be paying less money to pay your debts. Any debts that were overdue have now been paid off. If the temptation is too great to start charging again call and cancel the paid off credit cards.

Consolidating your debts into a personal loan can help you to begin repairing your credit but it needs to be done responsibly. If you cannot provide collateral and the only loan that you can secure for debt consolidation increases your rate it most likely is not a good idea. For more severe credit problems seek professional help. If you do not have the personal discipline to keep from going more deeply into debt this method may not be right for you.

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