Debt Consolidation Loan With Bad Credit 2020: Other Debt Relief Options.
Getting a debt consolidation loan when you have bad credit can be difficult. In this articlm we will guide you about debt consolidation loans & other options to get you out of debt.
Consolidating credit card debt when you have bad credit is a tricky numbers game that requires some patience and diligence to succeed.
If your credit score is above 640, a debt consolidation loan (also known as a personal loan) should reduce the high interest rates charged by credit card companies.
What Is Debt Consolidation?
Debt consolidation is combining all of your unsecured debt payments into one payment, usually with a lower interest rate. There are two ways to consolidate your debt:
With a loan (known as a debt consolidation loan) or
Without a loan (nonprofit debt management).
What’s a debt consolidation loan? It’s a way of paying off your debt with an umbrella loan that you acquire from a local bank, credit union, online lender or a friend or family member.
Credit Card & Other Unsecured Debt Consolidation
Credit cards and other high-interest unsecured debt (debt not backed by collateral) are the main reasons many people consider debt consolidation.
A large number of credit cards can carry interest rates in the high double-digits; rates of 20% to 25% (or even more) are especially common in the subprime markets.
Those high interest rates come with high monthly payments, and it can be easy to get caught in the “minimum payment” cycle — which only leads to an ever-growing balance.
Paying off your credit cards with a consolidation loan can help you avoid that cycle, as well as any credit score hits from missing payments when the balance becomes unmanageable. Be sure to look for an interest rate lower than that of your current debts.
Student Loan Debt Consolidation
Student loan consolidation can be a big help to recent graduates struggling to pay multiple student loans after leaving school.
It can be a good way to simplify the payments. A new student loan for every year or semester can mean a number of different hands in your pocketbook — as well as potentially trade a variable interest rate for a fixed one.
The thing to know about student loan consolidation is that not all student loans can be consolidated. While most federal student loans can be consolidated, private education loans are not eligible.
Also, you won’t be eligible for consolidation if you are already in default on your student loans.
Options For a Debt Consolidation Loan for Bad Credit
With so many lenders out there, it can be tough to know where to start looking. Here are some good places to start.
1. Your Local Credit Union
Because credit unions are not-for-profit organizations owned by their members, they typically offer loans with better terms than you can get from a traditional bank.
They may also have more leeway to lend to members whose credit isn’t in great shape, particularly if you’ve already built a positive relationship with them.
If you’re a member of a credit union, talk to a loan officer about qualifying for a personal loan. Credit unions may look beyond your low credit score and take into account your entire financial history, personal circumstances and your relationship with the institution.
2. Online Lenders
Online lenders like LendingClub, Upstart and Avant are good places to look for debt consolidation loans if you have bad credit.
With an online lender, you can often:
Compare rates without impacting your credit score
Apply quickly and easily, without lots of paperwork or visiting a branch in person
Get funds within a week, or even in as little as one business day
Online lenders may be more likely to approve you for a bad credit loan than a traditional, brick-and-mortar bank.
3. Your Home Equity
If you own a home and have significant equity in it, you may be able to take out a home equity loan to consolidate your debt.
It’s not technically a debt consolidation loan for bad credit, but it can help you score a low interest rate because the loan is secured by your home.
But there’s one drawback: if you default on a home equity loan, the lender can foreclose on your home to recoup the loan amount. So it’s best to pursue this option only if you’re certain you won’t have problems repaying the debt.
4. Predatory Lenders
Some debt consolidation lenders are predatory in nature, and this is especially true of lenders that work with people who have low credit scores. They’ll often charge exorbitantly high interest rates.
Online companies like LendUp and OppLoans, for instance, charge triple-digit APRs. That said, they’re nowhere near as pricey as payday loans, which typically charge APRs of 400 percent or higher.
Avoid these types of lenders at all costs. Accepting a loan with such a steep interest rate can be extremely expensive and cause you to go deeper into debt.
Plus, it defeats the purpose of a debt consolidation loan, which is meant to make it easier for you to pay down your debt.
These are offered by nonprofit credit counseling agencies. This program reduces interest rates on credit cards to 8% (sometimes lower) and lowers your monthly payment to an affordable rate.
The goal for credit counselors is to eliminate credit card debt in 3-5 years.
2. Debt Settlement Program
This option requires negotiating with card companies to get them to accept less than what is owed on a debt. The goal is to have the card company accept 50% of what is owed.
The drawback is this will put a stain on your credit report for seven years and you could have problems getting any other type of credit.
3. Credit Card Usage
Responsible credit card usage can help make sure that you don’t rack up too much debt and don’t get behind on payments.
Knowing how to pay down credit card debt can be extremely helpful and can help you save money over time.
If you are overwhelmed with debt and see no way of paying it off, bankruptcy may help you find relief. Filing for bankruptcy, however, will remain on your credit file for seven to 10 years and may affect your ability to obtain other loans in the future.
1. Can debt consolidation help me pay down debt faster?
Debt consolidation may help you lower your monthly payment or under certain circumstances decrease the amount of interest you pay, but this depends on your financial situation and your ability to make your monthly payments.
2. What kind of debt can I consolidate?
Whether you choose a loan or a balance transfer, you can consolidate credit cards, store cards and gas cards; high-interest loans; medical bills and more.
3. What kind of interest rates can I get with a balance transfer?
A balance transfer offer has a low promotional or introductory rate. Rates can be as low as 0%, depending on the offers that are available to you.
If you’re struggling to keep track of high-interest debt that you’d like to refinance at a lower rate, a debt-consolidation loan might be an option for you. But your credit may make it difficult to get favorable rates and terms on a debt-consolidation loan.
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