Rehab vs. Consolidation

[downtown01]

I'm a newbie so please be patient.

I have about $6500 to $7000 in defaulted SL (3 different SL). I was self employed for two years when business turned then tanked. I started work for someone else,steady income, and I'm now ready to start cleaning up my credit, mainly get these SL under control, and scores up.

My question is after reading quite a few post here (By the way, thank you for this site!!), which repayment plan is best for defaulted SL that would have an immediate impact on one's credit, if there's such a thing. I still don't know which way to go/start. Should I first rehab the SL then consolidate? Would this immediately help or would I have to wait out the 12 months of rehabbing before it had any effect on my credit? Or should I just consolidate the loans, which I'm confused b/c can one consolidate a default SL or not? If so, am I understanding correctly, the consolidation would show SL $0 balanced,but as a new TL? Is this good?

Reason for the rush, I'm looking at purchasing a home and I have been told by different lenders as long as you have some repayment plan set up now, they don't make it such a big deal over pass defaulted SL. PLus there's a possibility of paying off loans before the full 12 months.

Thank you for your imput!!

[TxQuiltGirl]

Well, first of all, welcome to the Student Loan Forum.

 

Secondly, I would recommend that you go the rehab route. If you do, the negative information can be removed and it turns a negative TL into a positive. Consolidation would simply end one TL and begin another. Also, this is one case where rushing to the finish line will not really help you - make all your payments on time and consistently until the end of the 12 months is over. Then once the loans have been rehabbed, you can pay them off if you wish.

 

Neither route is going to have an immediate effect on your credit, but for the long run, the rehab route will be better.

 

Good luck!

 

 

ETA: Consolidation will not remove negative information from your reports; the original TL will still show that it was in default but with a zero balance. And yes, you can consolidate defaulted loans. I personally don't recommend it.

Edited July 5, 2005 by TxQuiltGirl

[downtown01]

Thank you very much!! I'm on my way to start the rehabbing process this evening!

Thanks again

[LynnInMN]

Just an FYI...you cannot qualify for a FHA or VA loan with loans in default. It does not matter that you are making payments on them. For those loans they must be out of default. Also the CA's are not permitted to send out letters indicating that you are making payments for the purposes of another loan. This has been long standing policy!

Edited July 5, 2005 by LynnInMN