Debt Consolidation Loans for Bad Credit
Debt Consolidation Loans for bad credit are a debt reduction strategy that allows you to combine multiple debts into a single payment. Having one account can be easier to manage and making only one repayment could help you lower your monthly repayments.
One of the most common ways to consolidate debt is to take out a debt consolidation loan — a particular loan used to pay off multiple creditors. Although it may be tough to get a debt consolidation loan with bad credit, there are several options you can consider.
Benefits of debt consolidation loans for Bad Credit
Someone might get a debt consolidation loan for one of several reasons.
The biggest benefits of a debt connection loan include:
- Fixed payment: Debt consolidation loans have fixed interest rates and a set prepayment term. Your yearly payment will be the same every month — unlike variable payments on credit cards. A predictable yearly payment is easier to work into your spending plan, making it easier to keep other bills and debt you may have current and avoid fresh damage to your credit file.
- Lower interest rate: It’s generally only smart to get a debt consolidation loan if you can get a better interest rate than what you ’re paying on your debt now.
- Simplified finances : Debt consolidation loans rolls multiple yearly payments into one. Having only one lender and one yearly bill to worry about could help you pay off your debt faster. Plus, you ’ll avoid missed payments and strengthen your payment history by making loan payments on time, which helps boost your credit score.
How to qualify for a debt consolidation loan
Every lender has their own policies for borrowers looking for debt consolidation loans. You should be at least 18 times of age and not be involved in bankruptcy procedures. Every lender also will look at your credit score, income and debt- to- income rate to determine how able you’re of repaying your loan.
You ’ll frequently need a credit score of around 650, although bad credit debt consolidation lenders are available ; these lenders may accept credit scores of 600 or indeed less. With these funders the lower your credit score, the higher your interest rate since borrowers with bad credit scores pose an elevated threat of defaulting to the lender.
How to get a debt consolidation loan for bad credit
Most Unsecured personal Loan lenders will only allow minor paid defaults and generally have a minimum of 500 points on credit score.
If you have been declined by an unsecured personal loan lender you can consider a secured loan.
Secured loans require some form of collateral, similar as a vehicle, home or another asset. However, the collateral generally has to be worth enough to cover the loan amount. Because of this, getting approved for a secured loan is generally easier than an unsecured loan, and you may indeed qualify for a better interest rate.
Consolidate your debts into your home loan
Also if you have a property with sufficient equity you may be able to take out a home equity loan to consolidate your debt. While using your home’s equity may help you to secure a lower interest rate, there’s also significant risk involved. You could risk losing your home to foreclosure, If you can’t keep up with the payments.
What to do if you still don’t qualify for a debt consolidation loan?
Debt consolidation loans and the alternatives noted above are best for people who can qualify for a low interest rate. If you’re drowning in debt and can’t afford your monthly payments, it might be wise to consider credit counselling.
