Bad Credit Resource Center

This method of loan repayment results in accumulating interest and usually increasingly unpayable bills. If you use one credit card to pay off another, for example, you are paying interest on interest, and paying off the new credit card bill will be more difficult.

This method will also mean that you will always be looking for new credit and new debt to pay off your increasing debts. It makes better sense to get a second job or arrange for a new payment schedule.

Paying off your debts with another debt may help you in the short run - you will not have a late payment on your credit record - but in the long run the larger debt load will make maintaining good credit more and more difficult. The only exception to this rule is debt consolidation, in which all your bills are paid by one lender, who then becomes the only creditor you owe money to.

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Payday loans, sometimes called “cash advance loans” are small and short-term loans that carry very high interest rate.  Some companies have even begun to advertise them as loans to help you repair your credit, but this is very misleading. Some companies suggest that these loans can help you pay off your bills and so establish good credit, but if you can’t afford to pay your payday loans on time, you have to “roll-over” or extend the loan - often at huge expense and interest.  Many people get into a payday loans cycle, whereby much of their monthly paycheck goes towards paying off their ever-growing payday loans. 

It’s such a growing problem that several states are investigating payday loans for possible illegal activity stemming from usury laws.  If you can’t afford your bills one month, you are much better off trying to arrange an alternate schedule of payment with the companies you owe money to rather than risking your credit rating through payday loans.  Payday loans may be fine in a “true” emergency, but the payday loans cycle gets very costly very fast and can easily ruin your credit rating.

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Online loan calculators are a useful tool that can help you determine how much of an interest rate you should pay, how much in monthly payments you can afford, and how much your loan will cost you in interest over the long term. 

Online loan calculators are free to use and can help you figure out how to make your debts more affordable.  There are online loan calculators for auto loans, home loans, and personal loans.  If you are going to be getting a new loan, these calculators can be a powerful resource.

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Doing all you can to take out a smaller loan - by putting down a larger down payment or buying a less expensive car or home (if that is what the loan is for), for example - can help ensure that you don’t overextend your credit and can help ensure that your monthly payments on the debt will be reasonable and affordable to you. 

In fact, for larger purchases, some debtors take out piggyback loans, most often for a mortgage.  They borrow money for a down payment, so that they can get a better rate deal on the larger second loan they take out to pay for the purchase.

Do your math before making a big purchase - you may find that a larger down payment - even if you have to borrow to get it - can help your credit by making your payments more affordable and by ensuring that you don’t overextend your credit.

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If you only make the minimum amount on each of your loans, it will take you a long, long time to pay down your loans.  This is because most lenders only require that you pay down slightly more than the interest amount on your debt each month.  Even a debt of a few hundred dollars could take several years to repay this way. 

Paying down your debts by putting down more than the minimum required monthly payment can help you pay down your debts faster and so can boost your credit score.  Paying down more than the minimum also shows lenders that you are in good financial shape and conscientious about your debts - two qualities that definitely make you an attractive credit risk to lenders. 
 

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Debt is a major factor in your credit score.  If you have too much of it (or none at all) or if you have trouble repaying your debts on time, your credit score will be affected negatively.  Keeping your debts reasonable and current, on the other hand, will do more than almost anything else to improve your credit score.  The next few post will contain tips that can ensure that your debts actually help you boost your credit score.

Having many loans and the corresponding debt is one of the biggest reasons leading to poor credit ratings.  Essentially, the larger your debts, the worse your credit rating and the more likely that you’ll find yourself with large monthly payments that are difficult to repay. 

Consolidating your loans means that you take out one large loan to repay all your creditors so that you only have one large loan to repay.  While the overall amount of the loan does not change - if you owed $50 000 to five different lenders, you will still owe $50 000 but to only one lender - but the interest rates and corresponding monthly payments are usually quite smaller and this can help meeting your debt payments much easier. 

Debt consolidation can be an especially good idea if you have lots of high-interest debt and lots of bills that are hard to keep track of. One smaller monthly payment will be easier to remember and will help make bill time less painful.

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Start building your credit record early - even before college starts, if you plan on taking out college loans.  Ask your parents to sign over a bill that you pay on time each month.  Get a credit card with a low limit and a bank account that you balance each month.  Avoid opening several charge cards at once - not only will they be hard to repay, but having several new accounts when you have a short credit history will actually cause your credit rating to drop. Get a part-time job. 

Each of these things can help you establish good credit, which in turn can help you get a good student loan rate.  More importantly, establishing credit early will help ensure that you have a long (and good) credit history by the time you graduate from college, which will help you with all your important, large post-graduation expenses.

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One of the advantages of student life is that it is relatively inexpensive.  Student housing or rooms rented with roommates lowers cost, on-campus facilities usually offer great services at discount rates, and many businesses offer student-only deals.

Try to take advantage of these offers to make your student money stretch further so that you have take out the smallest student loans possible.  Look around to find the best student-deal offers, ranging from travel deals to free tax filing services, available from your school and surrounding businesses.

Make use of the free services on campus - such as renting movies for free from the film department or working out in the school gym - rather than paying for these same services off the campus.
 

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Many students think that walking away on a student loan after graduation is a smart way to get rid of a debt.  After all, they no longer need the money for school and in fact need the money for settling into a job and new home. 

However, defaulting on a student loan is a terrible mistake in almost all cases, because it affects your credit rating very negatively.  If you have student loans, it’s important that you start repaying them on schedule and that you repay them on time.  Doing so will actually improve your credit score.

If you’re having trouble repaying your student loans, talk to your lenders rather than ignoring the problem.  Most lenders will actually give you a grace period after graduation so that you can find a job and settle into post-college life before repaying your loans. 

If you have several loans, your lenders may be willing to help you consolidate them into one larger loan payment that requires smaller monthly payments.   Some lenders will also give you a few months grace in case of unemployment.  Read your loan agreements carefully to find out what the terms of your student loans are.  If you need to, work out a different payment schedule, seek out refinancing, or find some other way to repay. 

Only default on your student loans as a last resort when you really have no way of repaying your debts.  However, be prepared to take a big hit on your credit score.  Once you default on one loan, it really counts against your credit rating - especially since as a new graduate you do not have a long credit history yet.  Common sense will tell you that lenders who see that you have defaulted on one financial responsibility will wonder why you wouldn’t default on their loan, as well. After defaulting on your student loan, you may be unable to get credit for some time and you will have to work much, much harder to re-establish good credit.

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The use of student loans are becoming a big problem for more and more students.  On one hand, student loans can help students who could otherwise not afford go to college. On the other hand, though, huge student loans can be a terrible financial burden after graduation. 

While it’s true that most student loans don’t have to be repaid until after graduation, the time after graduation usually carries other large financial responsibilities.  Many college graduates want or need a car, a good job, and possibly a house or home.  Each of these things requires a good credit standing, but too large student loans not only require larger monthly repayments but also may affect credit scores by overextending credit.

As tuition fees rise, larger student loans are becoming the norm, leading to financial hardship down the road for many students.  To avoid this, you should take out the smallest loan you can, relying more on jobs, savings, scholarships, bursaries, and other forms of financial aid to make up the rest of your tuition and living expenses.  You should rely on loans as a last resort - not a first. 

Student loans are an investment in your future since they can help you get the education you need in order to get a great and fulfilling career.  However, these loans are a serious and usually long-term financial responsibility.  They should not be undertaken lightly. If you need a loan to pay for college, you should get the smallest loan you can and should get the best terms and rates on it possible. 

In general, need-based government-subsidized student loans generally offer the best terms and rates.  After that, student loans from private lenders may offer decent rates.  Personal loans and credit cards should only be used when absolutely necessary to pay for an education, as these tend to have higher interest rates and require that you start repaying them right away.

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