Debt Consolidation Loans For Bad Credit

If you’re struggling with having different types of arrears, you’re probably wondering how to consolidate debt with bad credit. If you have a decent score, it might be possible to secure a consolidation loan. 

Consolidation loans for bad credit are a great way for many borrowers to decrease their monthly payments along with the number of creditors that they owe to. You can often shorten the length of time it’ll take you to fully pay back your loan.

Borrowers turn to arrear management plans or personal loans to consolidate their outstanding balances. Keep reading to learn more about debt consolidation for bad credit, and why this might be the right option for you.

Benefits Of Debt Consolidation

If you owe multiple lenders different amounts, it’s easy to get lost and overwhelmed in your payment upkeep and schedule. Debt consolidation allows you to bring all your existing arrears into one singular loan.

Merging these amounts greatly reduces your risk of missing monthly payments and becoming delinquent, which can gravely affect your credit score. In fact, 35% of your rating is based on your payment history. 

A debt consolidation loan for bad credit might be subjected to higher interest rates, though that sum may be lower than what you have with all of your existing loans.

Most people pursue these lending products to pay off a high-interest kind of arrear, like a credit card. If you can lower your interest rates by combining your outstanding payments, then you’ll be able to save on interest over the lifetime of your loan.

Let’s break that down into a real-world scenario. If you have $5,000 of credit card debt and an APR of around 25%, then over 36 months you would pay $240 monthly and $2,500 in interest. 

If you consolidate your arrears into a loan that has an average of 17% APR over 36 months, your monthly payment would then be $200, and the interest you pay overtime would shrink to $1,700. This results in significant savings in the long run.

How To Increase Your Chances Of Debt Consolidation Approval

If you need a debt consolidation loan for very bad credit, it might require some patience and creativity. Keep the following methods in mind to help increase your chances of securing financing:

• Check your credit score: If you’re seeking the best debt consolidation loans for bad credit, being aware of your financial history will help you save time determining what loans you qualify for. You’ll also better understand how lenders view your creditworthiness
• Don’t take the first offer: Don’t just take the first offer that you get. Different lenders will offer various terms and fees, so it’s in your best interest to shop around and compare offers carefully 
• Think about a secured loan: Secured loans take a form of collateral, like your car or home. While this option can be risky, if you feel confident in your ability to meet monthly repayments then it can be a good option to secure lower rates 
• Improve your financial health: A bad score can be detrimental in trying to consolidate your loans, so you may be required to improve your rating before being able to secure a good deal

Best Places To Apply For Debt Consolidation

There are different creditors worth approaching when seeking to shrink outstanding debt balances. These include credit unions, online lenders, and other similar loan alternatives. Weigh your options to find the right fit for your needs.

Credit Unions

Credit unions require you to become a member to be eligible for financing. From there, you can likely gain access to flexible terms and lower rates. Keep in mind that federal unions have an 18% cap on annual percentage rates for personal loans.

Online Lenders

Many borrowers are drawn to online lenders because of their fast approval and quick loan dispersal options. Online lenders tend to offer APRs that range from 16% to 36%, which is significantly higher than credit unions. 

Debt Consolidation Loan Alternatives

Consider the following alternatives:

• Get hands-on. Take a DIY approach to your debt by overhauling your budget, requesting a different due date, or renegotiating the terms of your loans
• Consider a home equity loan or a home equity line of credit (HELOC) 
• Follow a debt management plan (DBP). This is a form of counseling that helps you tackle your loans. You’ll be required to pay just one lump fee to the agency

Bottom Line

If you’re seeking better financial health and find yourself overwhelmed with your different loans and outstanding balances, consider a guaranteed debt consolidation loan for bad credit.

With a little effort, you can identify the right approach towards retiring your outstanding balances while enjoying easier monthly payments and quicker repayment.