Bad Credit Debt Consolidation Loans
Do you have bad credit and are looking for bad credit debt consolidation loans? In this article we will look at what bad credit consolidation loans are, the pros and cons, the steps for applying and the different options.
What is a Bad Credit Debt Consolidation Loan?
Before you can understand what bad credit debt consolidation loans are, it is important to understand what debt consolidation is.
Debt consolidation is when you blend several debts into one payment. Having one payment instead of several can make it a lot easier to manage from a bookkeeping perspective. It can also help you potentially save on interest. If your interest rate is higher due to your having bad credit, consolidating your debts can help lower your overall cost of borrowing.
A popular way to consolidate debt is by applying for a debt consolidation loan. A debt consolidation loan is a personal loan that you can utilize to pay off more than one credit account.
A bad credit debt consolidation loan is simply one of those types of loans for someone with bad credit. Qualifying for one of those types of loans can be challenging when you have bad credit. However, if you do manage to qualify, the benefits of the loan can be many.
What Are the Pros and Cons?
Here are the pros and cons of debt consolidation loans.
- When you take out a debt consolidation loan, it can help simplify your financial life. Instead of having many payments to worry about, you only have to be concerned with one. This can help you pay off your debt sooner and lower your chances of a missed payment, which can further damage your credit score.
- A debt consolidation loan can also lower your overall cost of borrowing. It typically only makes sense to sign up for a debt consolidation loan if you can get a lower interest than you paying individually on your various credit accounts. For example, if you are paying 20% or more on your credit cards but you can sign up for a debt consolidation loan for under 10%, it makes a lot of financial sense.
- Debt consolidation loans can help make it a lot easier to budget. That’s because instead of having several payments to worry about that fluctuate over time, you only have one payment to be concerned about. If you get a debt consolidation loan with a fixed interest rate, not only will your interest rate stay the same, but your payment will stay the same as well.
- Although in theory a debt consolidation loan is supposed to help you pay off your debt sooner, nothing is stopping you from racking up even more debt when you take one out. You might find yourself in a vicious debt cycle, racking up more debt on your credit cards and the process repeats itself.
- There may be costs associated with taking out debt consolidation loans. Typical costs include closing costs, annual fees and loan origination fees. That’s why it is important to ask about any potential fees before signing up so that you are not surprised by them later on.
- Your cost of borrowing might be higher with a debt consolidation loan. That’s because a debt consolidation loan is based on your current credit score, and your credit score when you first applied for these loans might have been a lot higher than it is now.
Steps to Applying
Here are the steps in applying for a debt consolidation loan with bad credit.
1. Keep an Eye on Your Credit Score
Aside from your income, one of the biggest factors lenders base their decision on is your credit score. Applying for a loan only to get rejected can negatively impact your credit score. That’s why it is a good idea you keep a watchful eye on your credit score.
You’ll need to meet the lender’s minimum credit score to qualify. By knowing what your credit score is, you can avoid applying for debt consolidation loans that you won’t qualify for and hurting your credit score when the application is turned down.
2. Do Your Due Diligence
Don’t just apply for the first debt consolidation loan that you come across — do your due diligence and look into several options. This may require some effort on your part, but it can be well worth it. You can potentially end up with a loan on more favorable terms, that could save you hundreds or thousands of dollars.
3. Submit Your Application
Once you have narrowed down your list, you will want to make your final choice and submit your application.
Each lender has its own application. With that being said, you will usually be requested the same information. The lender will want personal information to verify your identity, such as your full name, date of birth and home address, as well as financial information. This includes a list of assets and any properties you own.
You should then hopefully hear back in the coming days or weeks with the lender’s decision on whether they will lend to you.
Understanding Your Options
The first and most obvious option is the bank or credit union where you do your everyday banking. This can be a good starting point, but it shouldn’t be your only stop. You can also check into competing banks and credit unions to see if there are better options elsewhere.
But you shouldn’t limit your options there. You can also check out online lenders. Some banks operate exclusively online.
Then, there are alternative lenders. These are lenders with more flexible qualification criteria. For someone with bad credit, this can be a way for you to qualify for the financing you need.