People in debt mostly opt to consolidate their debts as it helps in lowering the interest rate on debt. It also helps in reducing the number of debts you have. This helps you in better management of your debt and also helps you in improving your credit. However, if you have missed one or two payments and have it reported on your credit report, then you may have a poor credit score. In such cases, you can go for bad credit debt consolidation.
It is not easy to take out a debt consolidation loan with a lower interest rate when you have a bad credit score.
In fact, you won’t even be able to take out a secured loan if your credit record is already tarnished.
Loans are rarely available for people with bad credit. But, still there are some solutions for you that can help you to get a loan to consolidate debt with bad credit score.
Improve your credit score first before applying for a debt consolidation loan
However, as you have bad credit, the lenders can charge you high-interest rate on the loan as you are considered to be a high-risk borrower. The lender will assume that you may fall back on your payments and thus they will charge high-interest rate on the loan that you may apply for. Thus, you should try to improve your credit score first.
Because, as the interest rates on consolidation loans are high, you may not be able to manage the loan. Thus, it can aggravate your debt problems. So, it is wise to try and improve your credit record and then apply for a bad credit solution loan.
However, if you think that the financial stress you are in is just a temporary problem, you may think of taking out a bad credit loan to consolidate your debts. This is because, if the financial condition improves within a few months, you will be able to manage the debt and loan payments.
So, what are the options through which you can consolidate debt with bad credit score?
Here you go;
1. Go for the balance transfer method
When you have bad credit, you can consider a balance transfer method to solve your debt problems. A balance transfer is a process where you transfer the balance from all of the credit cards, that you have with high-interest rates, to an existing credit card with a low-interest rate. This will help you in lowering the interest rate on your debt and will help you in rolling together the several debts into a single but large credit card debt. So, you can see that even if you have bad credit, you can consolidate your debts through balance transfer.
Thus, if you are in financial stress and if you need to consolidate your debts and if you have bad credit, you can consolidate your debts through balance transfer.
2. Consider a debt consolidation program
Debt consolidation program is a professional help for people who want to consolidate debts. No matter how bad your credit score is, you can seek professional debt consolidation program to get out of debt.
In this method, the debt consolidation company provides you with a negotiator who will first evaluate your economic condition and then negotiate with your creditors to reduce the interest rate on your outstanding debts. This makes the paying back of your debt easier as your minimum payment decreases with the decrease in the interest rate and you also save a considerable amount of money in the long run.
Also, the negotiator distributes the debt payment, which you give to the company every month.
By doing so, you can make the process of paying back your debt hassle free.
3. Go for a home equity loan or HELOC
You can use the equity that is there in your home as collateral and based on that you can take out a loan. Such a loan can be a home equity loan or a HELOC (Home Equity Line Of Credit). You get this loan at a low rate of interest which makes paying for it convenient. You can repay the loan for a relatively long period and you can also get some tax benefits by consolidating through this loan. You can use 80% to 90% equity of your home to consolidate your debts.
There is one disadvantage of using this loan. You are putting your home at stake for paying off your unsecured debts. In case you are not able to repay, your house risks being foreclosed.
4. Consider P2P lending
This type of lending takes place between two individuals instead of a stereotypical institution like the bank. A P2P lending assists you with credit card bill consolidation. You usually pay a lesser fee and have a quick access to money.
Lastly, a personal loan can also be obtained from almost any financial institution to consolidate your debts. However, you should analyze your financial affordability before choosing any option to consolidate our debts. Since you have a bad credit score, you may have to work hard to get the approval for a bad credit consolidation loan.