Are you drowning in debt but struggling with a bad credit score? If you’re overwhelmed and unsure how to get your finances back on track, you’re not alone. Many people face the same problem and wonder how to consolidate debt with bad credit. Is it even an option? The good news is, it is possible!
In this article, we’ll walk you through how to consolidate your debt even with bad credit. We’ll explore the options available, steps to take, and tips to improve your chances of success.
If you’re ready, read on.
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Can You Obtain Loans For Debt Consolidation With A Bad Credit History?
Yes, you can obtain debt consolidation loans with a bad credit history. You will have to do some shopping around, but many banks, credit unions and online lenders will offer you a debt consolidation loan even with a low credit score.
They look for factors like your income, education, job history, etc. However, some lenders will charge a higher interest rate and some may ask for a co-signer who agrees to pay off the loans if you don’t.
What exactly is a debt consolidation loan? How do you obtain debt consolidation loans with a low credit score? Is it a good idea? What are the advantages and disadvantages? We’ll discuss everything in detail in the coming sections. So keep reading the article.
What Is A Debt Consolidation Loan?
A debt consolidation loan is a financial tool that allows you to combine multiple debts into a single loan. This means, you loan money from a single lender and use it to pay off multiple debts. So, just have one monthly payment to make instead of juggling several.
If you are struggling to keep up with several debt payments or facing a financial crisis a debt consolidation plan may help you. How?
- Simplify Your Finances: By consolidating debts, you have just one monthly repayment. This can be a relief if you are currently managing multiple credit card bills, personal loans, and overdrafts.
- Fixed Repayments: You know exactly how much you need to pay each month. This consistency can help you budget better and avoid the surprise of varying bills.
- Longer Term: You can spread out payments over a longer period, reducing monthly expenses. This can make payments more manageable. However, this may add more interest to your debt. Ensure you check the total interest you have to pay before opting for a debt consolidation loan.
Obtaining Bad Credit History Debt Consolidation Loans: A Step-By-Step Guide
Here’s a step-by-step guide to getting a debt consolidation loan with bad credit.
- Check your credit score and your total debts
Calculate the total amount of debt you owe. Include the late fee payments and interests if they are there.
Next, check your credit score. Many banks offer free tools to check and review your credit score. You can use one of them. Knowing your total debt and credit score is important to find the best debt consolidation loans available.
- Do your research
Don’t settle for the first lender you find. Shop around and compare the eligibility requirements, interest rates, repayment terms, etc. Check with credit unions, banks, online lenders, government debt consolidation loans and other credit card companies.
Check out the customer reviews to make sure the lenders are reliable and provide a quality service. If you’re unsure which is the best debt consolidation for your needs, contact us. Our team of debt advisors will help you find the right solution.
Are you struggling with unaffordable debt?
- Affordable repayments
- Reduce Pressure from people you owe
- One simple monthly payment
- Apply for the Debt Consolidation Loan with bad credit
After choosing the right debt consolidation loan, you must apply for it which is a straightforward process. You have to gather all the necessary documents, fill out the application form and submit it.
Keep in touch with the lender while your application is under review. Answer any questions the lender has promptly.
- Manage and repay the debt
Once your loan is approved, pay off your debts one by one and close the accounts. Set up a budget to ensure timely repayments. Don’t take any additional loans during this time.
What types of bad credit debt consolidation loans are available? Let’s explore.
Types Of Debt Consolidation Loans For People With Bad Credit?
Homeowner loans and guarantor loans are the main two types of debt consolidation loans available for people with bad credit scores.
Secured homeowner loans are backed by your property, making them less risky for lenders. This can be a viable option if you need to borrow a large amount. Below are the pros and cons of getting a homeowner loan.
- Ability to borrow large sums of money with low interest rates.
- The total payment is spread over a long period, which gives you the chance to make low monthly debt payments making your budget manageable.
- You are putting your home at risk as this could lead to foreclosure if you fail to repay the loan.
A guarantor loan involves a friend or family member co-signing the loan agreement, where they agree to repay the loan if you can’t. This provides lenders with extra assurance, making it easier for you to get approved. What are the pros and cons of the guarantor loan?
- Easy to get approved.
- More affordable than unsecured loans as the interest rate is comparatively lower.
- The guarantor is liable to pay the loan if you can’t. This can strain your relationships if you get into a financial crisis and are unable to pay.
Protip: If you are opting for a guarantor loan, communicate with your guarantor openly to avoid strains in personal relationships.
Now let’s get to the most important part. What will happen to your credit score when you apply for a debt consolidation loan? Continue reading to find out.
How Does A Debt Consolidation Plan Affect Your Credit Score?
When you apply for a debt consolidation loan, lenders perform a ‘hard search’ on your credit report. This might cause a temporary dip in your score. But, as you consistently make on-time payments, your credit score can improve.
Consistent payments demonstrate to your future lenders that you are reliable and responsible, making it easy for you to obtain any other loans.
Tip: When you obtain a debt consolidation loan, focus on repaying it. Don’t take any additional debts during this period. This could help you to improve your credit score.
Debt consolidation can be a lifeline if you have a bad credit score. By consolidating your debts, you can manage your payments better, which helps improve your credit score over time. Here’s how this happens.
- It’s easier to manage one payment than multiple. This simplification can reduce the risk of missed payments and the stress of keeping track of several due dates.
- A debt consolidation loan helps you stay disciplined with fixed monthly payments. This structure can create a sense of control over your finances.
Overall, your credit score would have improved when you come out of the debt with a consolidation loan even if it drops a few points initially.
Is Debt Consolidation A Good Idea If You Have Bad Credit?
Debt consolidation can reduce monthly payments and potentially lower the overall interest paid. However, it can be a bad idea in some situations. Look at this forum post for example.
Source: MoneySavingExpert
You must consider the following factors before settling for a debt consolidation loan. It will ensure you get the maximum benefit.
- Is the loan affordable?: Can you manage the monthly payments? Budget your monthly expenses properly and pay on time.
- Calculate the total cost of consolidation, including any potential fees. Ensure your savings aren’t wiped out by fees and additional charges.
- Compare the interest rates before and after consolidation. Make sure you’re not increasing your overall debt burden with high interest rates.
If you’re struggling to decide whether you should take a debt consolidation loan or not, contact a professional debt advisor or debt charity. Below are some debt charities in the UK where you can get guidance to pay off your debts.
- StepChange
- National Debtline
- Citizens Advice
If debt consolidation is not the right choice, don’t worry. There are alternative solutions. Let’s discuss them in the next section.
Alternatives For Debt Consolidation Loans
Below are some other debt solutions that can help you pay off your debts.
Debt Management Plan (DMP): DMP is an agreement between you and your creditor to pay all your debts in monthly instalments. This is an informal agreement, hence you can adjust the payments as per your financial situation by contacting your DMP advisor.
Debt Relief Order (DRO): Helps you to deal with personal debts that you can’t pay. Here, you don’t have to pay your debts for 12 months and then there’s a chance of your debts being written off.
Individual Voluntary Agreement (IVA): IVA is an agreement with your creditor to pay off all or part of your debts. You make regular payments to an insolvency practitioner who’ll distribute it among your creditors.
Bankruptcy: If you’re overwhelmed by your debts and any other debt solutions don’t work, then you can apply for bankruptcy. Based on the type of bankruptcy you are applying, you may have to place most of your assets under the control of a bankruptcy court.
Credit counselling: There are many free and paid credit counselling workshops where they’ll teach you to manage your finances properly. Additionally, you’ll get guidance on how to become debt-free and to improve your credit score gradually.
Looking To Consolidate Your Debt With Bad Credit?
Many credit unions, banks, and online lenders offer debt consolidation loans even if you have a bad credit score. However, you may have to pay a high interest rate or place a guarantor. A debt consolidation loan helps you simplify your repayments and pay them in an affordable, stress-free manner.
You must do your research and find a lender who offers you the best consolidation plan. Your credit score will go down just after obtaining a debt consolidation loan, but it will increase with time if you make the payments on time.
If you think debt consolidation is not the right choice for you, opt for other debt solutions such as DMP, IVA, DRO, or bankruptcy. Discuss with a professional debt advisor to make the perfect choice. Fill out this online form and one of our debt advisors will contact you.
Key Points
- You can consolidate debt with a bad credit score by applying for loans from banks, credit unions, and online lenders.
- A debt consolidation loan simplifies your payments, improves your credit score over time, and reduces interest rates.
- Secured homeowner loans and guarantor loans are the main two types of debt consolidation loans.
- Homeowner loans can offer you large amounts of money with lower interest rates. However, you’re putting your house at risk.
- To apply for a debt consolidation loan, first check your credit score and your total debt. Next, research the best lender and submit your application.
- Ensure you make the payments on time and avoid obtaining any additional loans during this period.
- Government debt consolidation loans may offer favourable terms for specific debts. Research eligibility for government programs or seek professional advice.
Frequently Asked Questions (FAQs)
Yes, you can consolidate debt with bad credit with options like secured homeowner loans and guarantor loans. However, you may have to pay high interest rates or need a co-signer to obtain the consolidation loan.
Secured debt consolidation loans require collateral, such as your home, to secure the loan. This often results in lower interest rates and higher borrowing limits. Unsecured debt consolidation loans do not require collateral, but they typically come with higher interest rates and stricter eligibility requirements.
The time it takes to see an improvement in your credit score can vary. Typically, if you make consistent, on-time payments on your debt consolidation loan, you may start to see improvements within a few months. The exact timeline depends on your overall credit history and financial behaviour.
Yes, there are government debt consolidation loans available for certain types of debts, such as student loans. These loans can offer favourable terms and lower interest rates. It’s important to research and see if you qualify for any government-backed programs.
Secured homeowner loans and guarantor loans are the best consolidation loans for someone with a bad credit score.
