App version: 0.1.0

Debt Consolidation vs Credit Repair: Which Is Better?

Debt Consolidation vs Credit Repair
Jason Steele
Jason SteeleUpdated January 26, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Debt consolidation and credit repair can both be helpful for managing debt. Deciding which is the best option for you, however, depends on your situation. Debt consolidation could be helpful if you’re struggling with several debts that have different interest rates and you’d prefer to have just one monthly payment, ideally, with a lower interest rate. Credit repair might be a wise choice if you’d like to make sure your credit report is accurate and improve your credit score. Read on to learn how debt consolidation vs. credit repair works to help choose the method that best suits your needs.

What Is Credit Repair?

Credit repair is a process of reviewing your credit report, looking for errors, and then  disputing any mistakes you find. Credit repair can be helpful if you have trouble dealing with your credit or if your credit score is poor. It may have a positive effect on your credit over time. Credit repair is different from debt settlement or bankruptcy. With credit repair, you correct errors on your credit report and work to pay off your debts. 

How Does Credit Repair Work?

Credit repair can help you identify and dispute inaccurate information on your credit report. This could include mistakes about payments or credit balances that are incorrect. If you find errors on your report, you can file a dispute with the credit reporting agency. This could lead to those mistakes being taken off your report, which could help strengthen your credit. What you can’t change with credit repair is negative information on your credit report that is correct. For instance, if you have a history of being late with or missing payments, that information will remain on your credit report for seven to 10 years. It will also likely negatively impact your credit score. In that case, working to pay your bills on time consistently could help you strengthen your credit over time.You can do credit repair yourself or you can work with a credit repair company. However, credit repair companies can be costly. And some of them have given consumers false promises about what they could do for them. You should be able to do most credit repair work yourself, for free. 

Pros of Credit Repair

There are advantages to credit repair, including:
  • Correcting inaccuracies on your credit report.
  • It could help strengthen your credit.
  • It might make you more aware of your credit history, including missed or late payments, and may motivate you to work to pay your bills on time.

Cons of Credit Repair

There are also a few drawbacks relating to credit repair. This chart will help you compare the advantages and disadvantages. 
Credit Repair ProsCredit Repair Cons
• It could help strengthen your credit.• Credit improvement is not guaranteed.
• You can report mistakes on your credit report to the credit bureau so they can potentially correct them.• Negative but accurate information, such as missed payments, will remain on your credit report for seven to 10 years. 
• It gives you a picture of your credit history and may motivate you to pay your bills on time regularly. • If you choose to work with a professional credit repair company, they may be costly.

What Is Debt Consolidation?

Debt consolidation is when you take multiple loans and refinance them into one new loan with a new lender. There are multiple ways to consolidate your debt, including a balance transfer credit card, using a personal loan, or opening a home equity line of credit. Consolidating debt could save you money and simplify your payments. Debt consolidation is different from settling debt. With a debt settlement, your lender or creditor agrees to settle your defaulted or delinquent debt on modified terms.And when it comes to debt consolidation vs credit counseling, there are also some key differences. Credit counseling involves working with a credit counselor to help get a handle on your debt. The counselor may help you set up a plan to repay your debt and/or teach you about budgeting. As you can see, credit counseling vs. debt consolidation are separate and distinct processes.

How Does Debt Consolidation Work?

With debt consolidation, you combine different debts into one so that you have one monthly payment, ideally with more favorable terms. To do it, make a list of your loans and credit cards. For each, include the total balance, interest rate, minimum monthly payment, and total remaining payments. Reviewing the list may help you decide if you want to consolidate all of your debts, or just some of them. Next, decide on a debt consolidation option — for instance, a personal loan or a balance transfer credit card — and get terms and interest rates from a number of different lenders. Compare the offers to choose the best one for you. It’s important to note that consolidating debt can affect your credit score. Applying for a personal loan or a new balance transfer card involves a hard inquiry on your credit, which will lower your credit score temporarily by a few points. Once you’re approved for a personal loan or balance transfer card, your score will also be impacted when you open the new account. That’s because a new account lowers the average age of your accounts overall. Again, this should be temporary.However, consolidating debt may also have a positive effect on your credit score. Debt consolidation could lower your credit utilization ratio because your available amount of credit will increase. Also, if you make on-time payments on your new loan, your credit score may benefit over the long term. Payment history is one of the biggest factors in determining your credit score. 

Pros of Debt Consolidation

There are a number of advantages to debt consolidation. These may include:
  • You could get a lower interest rate, which may help you save money.
  • It could help strengthen your credit.
  • It can streamline the payment process.

Cons of Debt Consolidation

There are also drawbacks to debt consolidation, so it’s important to weigh the pros and cons.
Debt Consolidation ProsDebt Consolidation Cons
• It could help your credit in the long run if you make payments on time.• It may lead to a temporary drop in your credit score due to a credit report inquiry.
• It could save you money.• There’s often a minimum credit score you’ll need to meet to qualify for a debt consolidation loan or balance transfer credit card.
• It could streamline the payment process.• Defaulting on consolidated debt could lead to your account going into collection.

Debt Consolidation vs Credit Repair: The Similarities

Both credit repair and debt consolidation offer similar benefits to individuals who are looking to manage their credit. 
Similarities Between Debt Consolidation and Credit Repair
• May generally lead to credit improvement over time.
• Could save you money.
• You can do both of these processes yourself.

Debt Consolidation vs. Credit Repair: The Differences

However, debt consolidation and credit repair do have differences you’ll want to consider. 
Debt ConsolidationCredit Repair
• You may qualify for the best rates and terms if you have a good credit score.• May be a good option if you have a lower credit score.
• Might lead to lower interest rates, streamlined payments, and new loan terms• Allows you to dispute inaccurate information on your credit report.
• May be helpful if you have multiple debts that have different interest rates• Can be helpful for cleaning up your credit report.

Which Is Better Credit Repair or Debt Consolidation?

Deciding on debt consolidation vs. credit repair depends on your specific situation. In general, if you have a good credit score and want to simplify your payments, lower your interest rate, or change the length of your loan, you may want to consider debt consolidation. If you have a lower credit score or there’s inaccurate information on your credit report, you may want to consider credit repair. 

The Takeaway

Choosing credit repair vs. debt consolidation is a decision that requires careful consideration. Either process could potentially help strengthen your credit over time. Deciding what your main goal is — making sure your credit report is accurate or simplifying your payments and potentially qualifying for a lower interest rate — may help. Either way, be sure to weigh the pros and cons of both debt consolidation and credit repair for your specific situation.If you’d decide to consolidate your debt, a personal loan could be one way to do it. And you can shop around for the best option with Lantern. In our online marketplace, you can quickly and conveniently explore personal loans from multiple lenders all at once to find the best rates and terms for you.Check your rates today with Lantern.

Frequently Asked Questions

Which is better, debt consolidation or credit repair?
How does consolidating debt work?
How does repairing your credit work?
Photo credit: iStock/PeopleImages

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
Share this article: