Debt Consolidation Loans for Bad Credit Explained

Debt. Most of us try to avoid it. Many of us fear it. Still, at some point in our lives, it’s practically an inevitability that debt will darken our doorsteps. It’s a simple concept based on the idea of a person’s being in a state of having a negative amount of cash to their name. That is to say, if you are in debt and have no money plus bad credit, you have an obligation to give some of that money to the person you owe. It’s a situation that is sometimes called being “in the hole.” Sometimes you need to turn to consolidation loans for bad credit.

But debt is not always a bad thing. The key is to take on debt intentionally. Then invest that money in a way that creates more value. Finally pay off that debt with interest. The fact is, people go into debt all the time for that very reason. It works because money is always more valuable at an earlier point in time than it is in the future. That’s the principle of compounding. The principle of compounding simply states that if you have a dollar now, it is more valuable than if you were to receive that dollar in one week’s time. This is why taking loans is feasible.

In this article, we will discuss:

Alright, so we understand debt. We have established that debt is not always a bad thing. In fact, it is a key risk that all entrepreneurs take when they start a business, (unless they were born into wealth, of course). But taking on credit card debt has become so prevalent that many people just pile on more and more debt until they can no longer handle the payments.

In the typical scenario where a person’s debt has gotten out of control, they have got several credit cards and cannot seem to keep track of all the payment schedules. So late fees continue to pile up to the point that the person is in a very deep hole indeed. At this point, we’re in big trouble.

Debt Consolidation Loan with Very Bad Credit

Now, chances are that our hypothetical debtor would not have been able to qualify for so many credit cards if it wasn’t possible for them to actually pay down their debt. Sure, it would take a lot of discipline- but it’s possible. We might expect such a person to really have to tighten their belt and take a crash course on organizing their finances.

Then we have a little financial product known as debt consolidation.

Do Consolidation Loans Hurt Your Credit Score?

Failure to dispense with your debt in a timely and efficient manner is absolutely necessary if you intend to preserve your credit score and protect your future buying power. The irony of debt and bad credit is that the lower your credit score, the more costly it becomes to pay it off. So, it’s easy to see how debt can be a very quick ride into total financial disaster.

If you have a high credit score, say around 750 or better, then you could probably qualify for a credit account with rates as low as 15%. Even decent scores between 650 and 720 can get interest rates as low as 16%. But if your score drops just a little more, say below 640, then you canfind yourself stuck with interest rates approaching 20%! That can make paying down your debt seem like an impossible task.

If, for example, you owed $2,000 on a card with 15% APR. Then you would pay $322 for that amount of debt. Take that up a notch to 16% and now you’re paying $346 on the same about of debt. So you can imagine how quickly your debt can accumulate.

Fortunately, there are financial product providers out there who do not want to see people who are struggling with debt have their financial lives fall apart, lose their homes, file for bankruptcy, or worse. These lenders realize that they can make a profit, and offer lower rates to debtors. Thus creating value where it would not exist otherwise.

In the case of a person struggling with many backed up credit card bills, debt consolidation can feel like a godsend. Here’s what you need to know.

Where Can I Get a Debt Consolidation Loan with Bad Credit?

Debt consolidation is when a person in debt hands all of the accounts in which they are in debt over to a debt consolidation service. The debt consolidation service then pays off all of the accounts. It becomes the owner of all of the person’s debt. From that point, the debtor makes a single payment each month to the debt consolidator.

No longer do they have to keep track of several accounts and worry about missing payments. Better still, the service provided by the debt consolidator often comes with much better interest rates. As long as the debtor actually has the ability to pay off the debt, debt consolidation makes doing so cheaper and easier.

What Are the Benefits of a Debt Consolidation Loan?

Your credit score is a decisive factor in determining whether you can qualify for a debt Consolidation Loans for Bad Credit. Get a personal loan with bad credit can also cause you to have to pay more interest after you are approved. When your credit score is in bad shape borrowing more money can be next to impossible. It is generally due to late payments on your credit cards.

The three major credit reporting agencies, (TransUnion, Experian, and Equifax), keep detailed records on persons who have signed up for a credit card or borrowed money. If you consistently make late payments, spend over 30% of your credit limit, or carry large balances over from one month to the next habitually- these credit reporting agencies will sink your credit rating like a stone. That’s bad news, and you’re almost certainly going to need consolidation loans for bad credit.

Debt Consolidation Products

There are a number of different ways debt consolidation loans for bad credit can be obtained and employed. Depending on your situation and your needs, you might consider one of the following debt consolidation products. Often it is smart to get a loan to pay off debt if you reduce your overall interest payments over the long run.

Consolidation Loans for Bad Credit Online

Many modern lenders are able to extend consolidation loans for bad credit over the Internet in very short periods of time. If you’re struggling to pay bills and have a busy schedule, this can be a great help. Simply log on in your spare time and apply. No more pounding pavement looking for the best lender in town. Simply compare different consolidation lenders online and get started fixing your credit and paying down your debt in minutes.

Consolidation personal installment loans

The beauty of debt consolidation personal installment loans for bad credit is it takes the worry out of dealing with half a dozen different financial institutions all breathing down your neck for their monthly payments. For those who are especially short on capital, or whose credit has been damaged, personal installment loans can be the perfect solution. Instead of borrowing one complete cash amount, you can borrow in segments, and pay your monthly bills at a lower APR. When a given installment loan is paid off, simply move on to the next. In some cases, you may obtain better rates for each consecutive installment, making this a great option for those with a modest income.

Money Cents: Is it Smart to get a Loan to Payoff Debt?

Consolidation cash loans bad credit

Finally, we have consolidation cash loans for bad credit. Speaking frankly, this may be one of the best options for people who are struggling with debt to simplify their lives, reduce their payment burden and move beyond excessive debt. Debt consolidation makes paying off debt less expensive and less confusing.

Debt Consolidation Loans for Bad Credit

While even a small amount of debt can feel like a major trial, we are yet to get into really deep water when it comes to debt. As most of us are aware, one of the consequences of failing to pay off credit card debts is bad credit. If a person had payments on three or more cards and missed multiple payments month after month- their credit might be completely destroyed in just a few months. Fortunately, there are consolidation loans for bad credit.

This can make it even harder to qualify for consolidation loans for bad credit. So how can our hypothetical debtor get out of this hole he’s dug for himself? One answer might be a debt consolidation loan.

A debt consolidation loans for bad credit allows you to pay all of your credit card bills at one time. You can repay the loan at a rate that is much better, often times, compared to the rates charged by the credit card companies. Debt consolidation loans let you pay off everything with one consolidated payment each month, eliminating the hassle and confusion of dealing with numerous accounts.

Using a Debt Consolidation Calculator under a single payment

Your first steps should be to show that you are serious about getting out of debt and paying off what you owe. If you have bad credit, taking the time to organize your finances and cut every possible expense will be key to both being approved and to paying off your consolidation loan successfully.

A great first step can be to seek the advice of a financial counselor. Such a person may actually recommend you to a debt consolidation lender. This is a great way to show your prospective debt consolidation lender that you are serious about paying off your debt in a timely and responsible fashion. Make sure to use a debt consolidation calculator that might help you understand your payment.

When you do move on your decision to obtain a consolidation loan, it’s important to consider your options very carefully. Do not take the first loan offered to you. Instead, shop around and get the best rates, terms, and conditions available. Lenders will appreciate that kind of attitude, and will look on you more favorably when you return to them after shopping around for consolidation loans for bad credit.

Debt Consolidation Loan for Bad Credit Alternative Options

Payday Lenders

Many payday lenders are not going to look out for your best interests. The fact is that if you are in dire financial straights, payday lenders are not going to be your best bet. That said, not all of them are bad news. Some will give you decent terms and will not try to keep anything from you. Interest rates for payday lenders tend to be extremely high. Some of the highest we’ve seen come in around 399% APR. That’s what we call predatory lending.

Payday lenders typically expect the loans they dispense to be repaid within two weeks to one month. Generally, this alone makes them a bad fit for debt consolidation lending. While we generally do not recommend these for consolidation loans, your conditions may be unique and your payday lender may be an exception to the rule as well. Still, these should not be your first choice.

Government Debt Consolidation Programs

These are probably the best place to start. Federal programs and credit unions often have the most amenable terms and conditions and you’re likely to get the lowest interest rates with credit unions and banks. Unfortunately, these types of financial organizations tend not to offer consolidation loans. Still, some do, and if you’re able to find one that does- you should apply by all means.

Credit qualifications might be higher than they would be at other lender types. As with any financing products provider, the better your credit score, the lower your payments will be. Nevertheless, check the credit unions and banks first- and in that order. Even if you find one far from your home, it’s worth the commute if they do offer you a loan.

Online Debt Consolidation Services

There are many online financial products providers who will extend loans to you over the Internet. Businesses like these will pay your debt, settle your debts into one single payment, and require you to repay them on a monthly installment basis. Like the banks and other traditional lenders, these online debt consolidation lenders run their business according to the risk-averse model. That means the lower your credit score, the higher your interest rates will be.

More often than not, they will offer you a list of options to choose from. Loans can vary from as little as $1,000 to as much as $50,000. Repayment terms may go on as long as 3 to 5 years. Furthermore, rates will tend to be rather high for those on the low end of the credit score spectrum. For those with a credit score at 650 or below, you will see interest rates as high as 25% to 35%. That’s high- not nearly as high as a payday lender, but high.

Everything About Debt Settlement You Were Afraid To Ask

Home Equity Loans

If you’re a homeowner, you have an additional option. You can use your home as collateral by taking what is called a home equity loan. This is a good option if- and only if- you’re certain you can repay your debt fully, completely and in a timely manner. Interest rates will tend to be better than online lenders and far better than payday lenders. Your APR may be competitive with your local bank.

But because the lender has the option to take possession of your home if you default on your loan- you can often obtain very attractive terms and conditions. Naturally, the major drawback is that fact that you will lose your home if you default on your payments. If the real estate crash of 2008 taught us anything, it’s that banks will not suffer from pangs of guilt when they kick you out of your home for failing to pay off your loan.

The Bottom Line

The fact is that if your debt has gotten out of control, you will not have the best possible lending options available to you. This is especially the case if your credit is damaged, or if you cannot make large payments. Debt remediation means you will have to make some hard choices. If you find yourself in this situation, choosing debt consolidation should also mean major reforms in the way you manage your financial decisions. Seeking the advice of a debt counselor is an excellent first step in your journey to financial solvency.

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