A debt consolidation loan might provide simplicity and peace of mind if you owe money to several creditors and find it difficult to keep track of it all. You can bundle your bills into a single monthly payment with this kind of loan.
Make sure you are aware of the advantages and disadvantages of a debt consolidation loan before taking this action. With poor credit, it could be difficult for you to acquire a loan, but there are actions you can take to increase your chances.
What Is a Loan for Debt Consolidation?
You can combine all of your debts into one personal loan using a debt consolidation loan. You will no longer have to worry about handling numerous invoices because you will only have one payment to make toward your debts.
In some circumstances, a debt consolidation loan can also reduce your interest rate, allowing you to save money and pay off your obligations more quickly.
“A debt consolidation loan is one tool you can use to get a handle on debt,” says Jeff Arevalo, a financial wellness specialist with the national nonprofit credit counselor GreenPath Financial Wellness.
Benefits and Drawbacks of Debt Consolidation Loans
You make your money simpler. With a debt consolidation loan, there are fewer payments to make and deadlines to remember. You’re less likely to miss a payment or pay it late, both of which result in penalties and costs. When you see everything on one statement, it’s simpler to keep track of debt repayment, according to Cynthia Meyer, a fee-only certified financial adviser with Real Life Planning in Gladstone, New Jersey.
You might pay less in interest. The interest rate on a debt consolidation loan will frequently be less expensive than the rates on some or all of your previous loans. If a person has been finding it difficult to make their monthly payments, a lower interest rate can lead to a smaller monthly payment, making it more manageable, according to Arevalo.
Your credit score might go up. Reduce your credit utilization ratio to raise your credit score by paying off revolving lines of credit. Making on time payments on your debt consolidation loan can also improve your rating.
Cons:
You might need to pay up front costs. According to Arevalo, “most loans demand an upfront origination fee.” Some might demand transfer fees.
You can receive a “teaser” rate. That indicates that the loan’s interest rate initially is lower for a set period of time before rising to a higher rate.
You might incur greater overall expenses. Your repayment period may occasionally be lengthened by a debt consolidation loan. Your monthly payment may be reduced as a result, but over time, “you may pay more in interest overall,” warns Arevalo.
Your financial issues won’t always be resolved. You run the risk of reverting to old poor habits if you have a history of living over your means. According to Meyer, if you combine your debt but keep your credit cards open and don’t stop the spending habits that got you into debt, you risk accruing more. “Then you have credit card debt plus a consolidation loan once more.”
Where to Find a Bad Credit Debt Consolidation Loan
Finding a debt consolidation loan with negative credit is possible in a number of ways, including:
banks and credit unions in your area.
lenders online.
lenders inside your credit range. (Confirm the minimal credit standards.)
How to Get a Debt Consolidation Loan When You Have Bad Credit
Even though it can be challenging, getting a debt consolidation loan when you have negative credit is not impossible. Here are several strategies to raise your chances:
Verify your credit rating. Knowing your score will help you choose which loans might be suitable for you. To find strategies to improve your credit, you might also analyze your credit reports, which you can still access for free each week online from all three credit bureaus.
Prequalify and comparison shop. Before submitting an application for a debt consolidation loan, compare the terms provided by various lenders. Find lenders who will let you prequalify so you can check your loan eligibility and interest rates without having your credit score affected.
spread out. If you’ve had credit issues, local credit unions and certain online lenders could be willing to be flexible with their loan requirements.
Have a co-signer in mind. You may be able to obtain a loan that you would not otherwise be eligible for if you apply with a co-signer who has good credit and a stable source of income.
Guide to Debt Consolidation Loan Comparison for People with Bad Credit
To ensure that you obtain the greatest offer on a debt consolidation loan with bad credit, comparison searching is extremely crucial.
Arevalo advises making a solid plan before going shopping. To avoid taking on too much, he advises figuring out just how much you need. “Make sure you can pay the loan back on time and in full.”
Seek out lenders who offer prequalification with a soft inquiry that won’t lower your credit score, and get many bids.
Examine loan terms thoroughly to look for any potential hidden costs: Don’t ignore the small print. Before applying, you should do the arithmetic to ensure that the loan would result in a savings for you.
Beware of con artists and exploitative lenders. Avoid businesses who want a deposit before they would secure a loan for you. Due to their extremely high annual percentage rates, or APR, and brief repayment periods, payday loans are also not a suitable solution for debt consolidation.