The 411 on Debt Consolidation for Poor Credit
Tackling mounting debts on a low income is a nightmare for a lot of people. If you think you're out of options, don't dismay. A debt consolidation for poor credit may be exactly what you need.
A debt consolidation loan allows you to pay off multiple debts in exchange for a single, larger loan. There are both pros and cons to taking this step, especially for those with poor credit.
Before jumping into the details of debt consolidation, let's look at how most people get into this situation in the first place.
The Dreaded Credit Card Spiral
Many credit card companies prey on younger individuals. Unsuspecting college students often start the downward spiral of unsecured debt payments early in life.
With credit card interest rates ranging from an average of 15% to upwards of 29.99%, it's easy to see how users can get themselves into trouble.
When you're first establishing credit, cards often come with low credit limits. New users find that this is fixed by applying for a new card. For a while, you're able to meet all the minimum payments and life seems good.
And Then the Problems Begin...
Suddenly, you realize you are way over your head in debt, and the total of all your minimum payments is more than you can afford with your current paycheck!
Once you reach this point, you must act fast or things can get out of control. As soon as you start missing payments, your interest rates go up and your credit score starts to decline. Unfortunately, the more you need debt consolidation for poor credit, the harder it is to get.
Taking Control by Consolidating Your Debts
If you're proactive and are able to get a conventional debt consolidation loan, you may be able to get out of the situation without too much damage to your credit. Usually, though, by the time you're looking at your options, you already need to consider debt consolidation for poor credit.
These types of loans may cost you a bit more in interest rates and fees but are usually still your best option. Almost all debt consolidation loans have benefits that can help you get back on a solid financial footing. Here are the top three.
Simplified Payment Schedule
When you consolidate down to a single loan, you no longer have to keep track of multiple payments and due dates. Since late payment fees can add up, it makes sense to keep your repayment schedule as simple as possible.
Better Repayment Terms
When you consolidate your loans, you can usually to negotiate more favorable repayment terms. Getting rid of a multitude of minimum payments and stretching the balance over a longer repayment period are two effective ways to reduce your minimum monthly payment amount.
Lower Interest Rate
One of the most common reasons people pursue a debt consolidation loan is to lower their interest rate. Before accepting a consolidation loan, determine whether the new rate is lower than your current weighted average interest rate. If not, there may still be other advantages to consolidating, but you'll need to think long and hard before moving forward.
Potential Disadvantages of a Debt Consolidation Loan
After learning about all the positive benefits of debt consolidation, you may be ready to jump right in. Not so fast! You must also be aware of some of the potential drawbacks.
It's Possible to Get Yourself Further in Debt
If you consolidate your debts and then charge your credit cards back up, you'll be in far worse financial shape than if you hadn't done the consolidation in the first place.
You Must Stick with the Plan, Or Else
If you fail to make your new payments on time, you run the risk of further damaging your credit score. Even worse, your interest rate may be raised, and you'll likely be hit with some hefty fees.
Decent Debt Consolidation Loans Can be Hard to Find
Debt consolidation for poor credit can be difficult to come by. You must beware of disreputable lenders and predatory lending practices. Always read your contracts carefully before committing to any type of loan and don't be afraid to ask for a second opinion.
The Impact of Your Credit Score
Your credit score is a measure meant to predict how likely you are to repay the debts that you owe. This score, which ranges from a low of 300 to a high of 850, typically determines your ability to obtain a loan and impacts the interest rate you'll be charged.
Generally, a score of 600 or less is considered bad credit. In many cases, if you have a poor credit score, you simply don't have access to the loans you may need. Fortunately, there are some quality lenders who don't rely on credit reports from the big three reporting agencies.
These lenders use other information, which may include your history with specific consumer loans. These inquiries generally don't negatively impact your credit score like other loan applications can.
Tips for Paying Off Your Debt
In almost all cases, the faster you can pay off your outstanding debt, the better off you'll be. Consider taking on additional part-time work or picking up extra hours at your current job.
Look around your house and see if there are items you can sell for extra cash. Electronics, brand-name clothing, and other items are often easy to sell online. If you have a lot of random stuff you could part with, a yard sale might be your answer.
Although these measures may seem excessive, it's definitely in your best interest to do whatever you can to get yourself out of debt. Our finances are one of those things that follow us around forever, so sacrificing now is worth it for the future peace of mind.
Need Help with Debt Consolidation for Poor Credit?
If you're ready to consolidate your debt, there's no time like the present. Don't bother applying for one consolidation loan after another. Instead, complete a single application and let us match you up with the right loan for your needs.
Our approval process only takes a few minutes, and bad credit is okay. Apply online today and you'll see just how easy it can be!
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