What You Need to do to get a Debt Consolidation Loan if you have a Bad Credit History

What You Need to do to get a Debt Consolidation Loan if you have a Bad Credit History

According to Comet, almost 80% of baby boomers, Gen-Xers, and millennials have credit card debts. While you could argue that most of it is mortgage or student loan related, the truth is that the bulk of this bad debt is because of credit card, auto, and medical debts, to the point that the latter is the top cause of bankruptcy filings in the United States. It’s no wonder then, that most Americans have a bad credit history. 

However, you should know that there are options available to address your debt issues, so there’s no need to take any drastic steps. But one should not just jump into a debt relief option and some of the signs before considering such a move include falling behind on your bills, using credit cards to pay your bills (and only the minimum payment at that). One of these debt relief options is a debt consolidation loan. While this may not reduce your overall liability, at the very least it makes managing it easier. The concept is that you borrow enough money to clear your existing debts and just make one monthly payment to the lender providing the debt consolidation loan. 

While it may not be too difficult to get debt consolidation loans with bad credit, you should nonetheless properly research different financing options to choose the loan that gives you the relief you need, at a markup and monthly payment which you’re able to meet. The first step to take before considering a loan is to monitor your credit score regularly and then work towards improving it. Factors which could affect your credit score include making your payments on time and limiting the number of accounts you own. This is important as any lender will look at your credit score first and then determine a “safe” amount to lend you along with the interest rate you’ll have to pay. The better your credit score, the more money lenders will give you a lower interest rate. 

Once you have your credit score sorted (as much as you can), it’s time to research debt consolidation companies. These are ideal for those with “substandard” credit ratings, but more often than not a con artist will be ready to take advantage of your desperation, so beware of scams and fraudulent activity. The best way of doing this is to contact your own bank or credit union first. You should be prepared for being turned away though, as these institutions are already wary of you due to your bad credit history with them. Also, banks and credit unions wouldn’t normally offer debt consolidation loans, and even if they do, because of their risk-based pricing model, you’ll end up paying a lot more in interest and fees. If you think working with a name you already know is worth such a cost, then you have your winner! 

In the event you get turned down because of your credit, your next option would be to research different lenders and debt relief companies. These entities operate differently from banks and credit unions as their main focus is to offer debt relief through debt consolidation loans for those who have a bad credit history. Essentially, your arrangement with such a lender includes the said lender paying off all of your existing debts, leaving you obligated towards the lender alone for the full amount. This results in one monthly payment being made to one single entity, allowing easier management. You should expect the interest rates to be high as is the case with banks and credit unions, considering that these lenders prescribe to a similar risk-based pricing model. 

When discussing your options with the lender, ask as many questions as you can so you have a clear picture of the arrangement. Reputable lenders will offer varies depending on the individual and their credit history. These entities understand that a generalized plan will not work for everyone and will, therefore, offer a few options. Make sure you understand all of them and are aware of the risks involved and the liabilities you take on (in addition to just having to repay the loan). Sometimes there are other fees and liens, such as early repayment fee. This is where you would have to pay an additional (and sometimes significant) amount in the event you’re able to pay off the loan before the contract term is up. It may be tedious, but reading through the contract is always a good idea. 

To summarize the above, the process of getting a debt consolidation loan is the same as it would be with other types of loans. Before you go speak to the lender, make sure you have all your information with you. Make a list of all your debts and creditors and, if possible, have the relevant documentation. This will help you and the lender reach an agreement faster. When you’re filling out the form (more than likely there will be one), provide all the information asked and don’t conceal anything. If they come across the hidden information at a later stage, it’ll just make matters worse. Some companies may put you through a pre-approval stage at this point before signing an actual loan agreement. 

Before signing the agreement, make sure you read all the terms and conditions (remember hidden fees!), and that you understand everything beyond just the repayment schedule and fees. The interest rate isn’t the most important part and you need to look at the overall structure. Once the payment is released, pay off your debts RIGHT AWAY. The longer you keep it, the higher the chances are you’ll end up using it for something else as well. Considering that you now will only have one payment to make, the matter should be a lot easier to manage, allowing you to properly plan your finances. Just be sure not to take on any more debt!

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