Debt consolidation loan, as effective as it is to help you get out of debt, will still require you to have a good credit rating. This is one of the ways that you can maximize the benefits that it can bring to your finances. After all, this is still a loan that you have to borrow. That is the primary reason why it is a must to have a good credit score before you borrow a loan for consolidation purposes.
Before a lender approves of your loan, they need to be given the assurance that you can pay them back. Your credit score will give them this assurance. The data in your credit report is the primary source of information when it comes to calculating your credit score. This report holds all the vital information about your credit transactions. If you use credit regularly and it is written on this credit report that you paid it back responsibly, then that means you are a low-risk borrower. You can be trusted to pay back the loan.
However, if you do not pay your dues regularly and you tend to borrow too much money, then that will not reflect favorably in your credit score. Late payments, a high credit utilization rate, and even multiple hard inquiries are signs of a high-risk borrower. That means you are more likely to run off without paying your loan.
Of course, having a bad credit does not really mean you cannot use debt consolidation loan as your debt solution. It is still possible to use this option but the benefits that you will get will no longer be as much as it would be if you have a good credit rating.
Where can I borrow debt consolidation loan with a bad credit?
In case you really want to proceed with this debt relief program, you have to know how to do it. To start with, you need to know the best places for you to get a debt consolidation loan. Here are the lenders that you can go to if you want to borrow a loan with a bad credit score.
Credit unions. These are the member-driven financial institutions. That means it will most likely decide favorably towards their members. If you are a member of a credit union, it is advised that you seek them out any apply for a debt consolidation loan with them. While they will not hand you the loan on a silver platter because you have a bad credit score, it will definitely be more favorable compared to what you will get from private banks and financial institutions.
Online debt consolidation lenders. These lenders function online and primarily offer debt consolidation loans. Since their financial products are limited, you can be sure that they have something to offer those who are seeking out loans despite having a bad credit score. Of course, you need to make sure that you will conduct enough due diligence on these companies. You want to make sure that they are reliable and trustworthy. They have to be reputable like National Debt Relief – a BBB accredited debt relief company. They have helped thousands of consumers get out of debt. If you are looking for the best, you can be assured of debt consolidation made easy with nationaldebtrelief.com.
Family or friends. While they are not really financial institutions, one of your options is to borrow money from a relative or a close friend. Admittedly, it will be hard to look for one. Some may be financially well-off but not everyone is willing to lend their money – especially if you are doing it to consolidate debt. The risk of not being paid back is just too much. In case you were able to find someone who trusts you enough, make sure that you put everything in writing. Not only that, you have to make sure that you can pay the loan. If not, you might end up ruining your relationship with the lender.
Retirement plan. A lot of financial experts will not agree to this. However, this is money that you can still tap into if you find yourself wanting to solve your debt situation. Just make sure that you know the consequences of withdrawing money from your retirement fund before your retirement age. For instance, you will be taxed twice. The money you will use taxed income to pay back the borrowed retirement money and then that money will be taxed again when you withdraw it during retirement. Not only that, you might compromise your retirement if you fail to pay this back. So consider carefully if you want to use this option or not.
Is debt consolidation loan a good idea if I have bad credit?
Before you make the final decision to use debt consolidation loan, check if it is really a good idea considering your bad credit rating. To help you determine if it is a good idea, you need to know how this debt solution can help you out. Ask yourself this question: what are the qualifications of the best debt consolidation loan?
It should simplify your repayment plan. First of all, consolidating the debt means you will be left with only one debt to pay each month instead of the original multiple accounts. It makes tracking easier and it minimizes the chances of forgetting to pay the loan. Even if you have a bad credit score, debt consolidation loans can still help simplify your repayment plan.
It should give you a lower interest rate. The next qualification is a low-interest rate. Unless you can get a lower interest rate, it does not really make sense to consolidate your debts. You will end up paying more on the loan. You should just leave it as is if you will be getting a higher interest rate. Since your credit score has a huge influence on your loan’s interest rate, you can bet that your bad credit rating could give you a high-interest rate. If you are deemed a high-risk borrower, the lender will give you a higher interest rate. So this will not really be met if you have a bad credit score.
It should help you save money. MAYBE. This really depends on the terms that you will get. If you can shorten your payment period, you will save money – even if the interest rate will be higher. But if you are consolidating through a loan so you can lower your monthly payments, you will end up paying more on the loan. This will be even more so if you will have a high-interest rate on the loan.
If you think about it, the deciding factor will be on your terms. In case you cannot save money with the terms that you will get from the loan, then do not go through with the debt consolidation loan.
Of course, your decision should consider your financial position in general. If your current financial situation requires a lower monthly payment, then this option will not really be ideal because the higher interest rate will make you pay more. Make sure you consider all the aspects of your finances before you finalize your decision.
What happens if you borrow a debt consolidation loan with bad credit?
There are four things that can happen when you try to apply for a debt consolidation loan with a bad credit.
You will be denied a loan approval. The first scenario is being denied a loan. Take note that there are specific details in your credit report that will increase the chances of a disapproval. Having a record of bankruptcy is one. If you have a high credit utilization rate, that is also a factor. When you are denied a loan approval, you have every right to ask the lender why. Ask because there might be a way for you to fix your credit situation so you can reapply and be approved.
You will be asked to get a cosigner. When you are denied a loan approval, you can always reapply but this time, with a cosigner. This person should have a better credit score than you. The best candidate for this is your spouse. This person will be equally responsible for the debt that you will borrow. If you cannot pay the loan, they will be responsible for taking up the burden of paying it.
You will be charged a higher interest rate. In case you are not denied, one of the things that can happen is you will be given a higher interest rate on the loan. This is the lender’s protection against the event that you will not pay off your loan. This will make you spend more on the loan so consider carefully if you still want to proceed. Try to calculate the costs of consolidating the debt through a loan.
You will be required to present a collateral. In the event that the lender denies the loan, you can always go for a secured loan. That means you need to offer a collateral that can be considered as “payment” for the debt in case you fail to pay it back. Most of the time, consumers use a home equity loan. This allows them to use the equity built up on their house to get a loan that they can use to consolidate their debt.
What should I do if I have bad credit but I really prefer debt consolidation loan?
If your bad credit score is keeping you from using debt consolidation loan, do not give up just yet. With a little patience, some discipline and self-control, you can still use this debt solution. If your need to consolidate your debt is not urgent, you can always postpone your plans so you can fix your credit problem. Here are some of the things that you need to do.
Identify why your credit score is low. Start by finding out why your score is low. Sometimes, there are errors in your report that is causing it to go down. Or you may be a victim of identity theft. There may be paid transactions that are not yet in your report. These are things that can contribute to your lower credit rating. If it is your bad financial habits that are causing your score to go down, you need to identify this as well. By knowing why you have a low score, you will know how you can improve it.
Report any inaccuracies. In case you find inaccuracies in your report, you should inform the major credit bureaus compiling the data. You might want to inform the creditor or lender because their own records might be incorrect. If their records are correct, you can then proceed to the major credit bureau. This is a task that you need to accomplish especially if the inaccuracy is caused by identity theft. In that case, you should also alert the authorities so they can help you investigate.
Change the habits that caused your score to go down. Even if your credit score went down because of identity theft, you still have a lesson to learn. You need to take extra care in making your personal and financial details secure. Apart from that, your spending habit may have to be checked. After all, you must have amassed quite a balance for your score to be pulled down. Look into these so you will know what to do so your credit score will not go down again.
Work on improving your credit score. There are many things that you can do to be proactive in improving your score. You can pay off your debts properly and on time in the next few months. If you can lower your balance, that would also be a good idea. You can also negotiate with the credit bureaus to remove some of the negative entries that have been there for a long time.
After a couple of months, you should be able to see some improvement in your credit score. It might already be good enough for you to get a lower interest rate and better terms when you apply for debt consolidation loan.
If not debt consolidation loan, what are my options to consolidate?
In case you cannot wait to improve your credit score, you can always opt for the other consolidation options. There are two that you can choose from.
Debt management. This option involves a credit counselor who can help you create a DMP or Debt Management Plan. This plan will serve as your repayment plan. It should be easier for you to follow this plan because it is based on your financial situation. The counselor will present this DMP to your creditors and lenders for approval. If they approve, your credit accounts will be frozen until after you finish paying this off. The payment will be a single monthly contribution to be sent to the credit counselor who will disburse the funds to your various accounts. This service will only cost a small amount compared to the convenience of consolidating your monthly payments.
Debt settlement. The other option that you have is debt settlement or debt reduction. If you cannot afford to pay your loans as you used to, you can negotiate with your creditors and lenders to allow you to pay only a portion of what you owe. You will negotiate to pay only pennies on every dollar that you owe. If they agree, you will send a settlement amount and anything that is not covered will be forgiven. This is a debt solution that you can do on your own or hire a professional to help out. There are many companies out there that are sincere in wanting to help consumers get out of debt. One of them is National Debt Relief. You can give them a call and one of their trained and licensed debt experts to discuss your options. The initial consultation is free and without any obligation.
In case you will get the help of a professional, make sure that you read reviews about the company. You want to entrust your debt situation with a company that is reputable to put the interest of their clients first. You can check out toptenreviews.com on debt consolidation for the companies that you can consider. See the qualifications, affiliations, and the factors that make these companies the best in the industry.