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How to Get Debt Consolidation with Bad Credit

If you have bad credit, getting a debt consolidation loan that works for you may not be easy.

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For people who are dealing with large amounts of debt, it can sometimes feel like there aren’t many places to get help and not many options available. If you’re looking for bad credit debt help, it might seem like there are no options at all.

For instance, in some cases, people who have relatively good credit can speak with their lenders if they end up in a situation where they can’t afford to make their required payments. Lenders may be willing to work with you if you have a long history of paying your debts on time and you’ve ended up in a financial situation that makes that difficult.

In these situations, they may give you more time to pay or reduce the amount of interest you’re being charged to make it easier. However, if you have bad credit, it can be difficult to communicate with your lenders. They may not be willing to negotiate with you since they might feel that you are a riskier person to deal with when it comes to finances.

Another option for people who need debt help is debt consolidation. However, if you have bad credit, getting a debt consolidation loan that works for you may not be easy.

What is Debt Consolidation?

Debt consolidation is the process of using one loan to pay off several other loans. There are a few reasons why people choose to consider debt consolidation:

  • It simplifies the process of paying loans
    • For people who owe many debts to many different lenders, it can often be difficult to remember when each payment is due, how much you are supposed to pay, and more. This confusion leads to missed payments, penalty charges, and interest. Missing payments can also hurt your credit rating.
    • A debt consolidation loan leaves you with just one payment to make each month.
  • It potentially reduces interest payments
    • If you can get a debt consolidation loan that has a lower interest rate than the overall interest rate on your other debts, you can save yourself money on interest.
    • This can be done by getting a new loan with a lower rate (if possible) or by using an existing source of credit to pay off higher-interest debts (such as using a line of credit to pay off the balance on several credit cards).
    • For instance, if you owe money on three credit cards and the interest rates on these cards are 19%, 22%, and 24%, and you get a debt consolidation loan with a 15% interest rate, you will save money on interest.
    • However, those searching for bad credit debt help may have difficulty getting a loan with a low enough interest rate to help them save money.

Potential Downsides to Debt Consolidation

As mentioned, one potential difficulty with getting a debt consolidation loan as a way to find bad credit debt help is that it can be difficult to get a loan with a low-interest rate. If you have bad credit, lenders may not be willing to give you a new loan at all. Lenders that are willing to provide a debt consolidation loan will likely charge a high-interest rate if you have bad credit.

Lenders consider those with bad credit to be a higher risk and, therefore, they charge higher interest on loans. This can make it difficult to save money through a debt consolidation loan.

Another point to keep in mind is that a debt consolidation loan does not reduce the overall amount that you owe. While it can simplify the process of paying your debt and it may save you money if you can get a low enough interest rate, you will still be responsible for paying the full amount that is owed. If you have borrowed a large amount and are not able to pay it back, a debt consolidation loan may not give you the help you need to get your debts under control.

If you get a debt consolidation loan, you will still need to pay your full debt back on time. Missing payments will further harm your credit score and could open you up to legal action from your creditors.

Improving your Credit

If you’re looking for bad credit debt help, and you haven’t been able to get the assistance you need to help you with your debt, improving your credit could be the correct path to take.

To improve your credit score, you’ll first need to understand what information is used to calculate this score. In general, your credit score is a three-digit number that is generated based on the information in your credit report. Your credit report contains details on all loans that you have taken out in the last six years.

Lenders look at your credit report to help them determine the risk of lending you money. Factors that affect your credit score include:

  • Your payment history
    • This is one of the most important factors and it carries the most weight with lenders. They want to know that you have a history of making payments on time. Late payments and missed payments significantly hurt your credit rating, so you’ll want to make sure you pay your bills when they’re due.
  • How much credit you’re using
    • Lenders don’t want to see you using all of your available credit. In their eyes, if you’re using all of the credit available to you, you’re a lot more likely to end up in over your head.
    • The general rule is to use no more than about 30% of the credit available. This means if you have $10,000 in available credit, for example, you should try to only use about $3,000.
  • Your credit history
    • If you’ve had a credit account for a long time, this reflects positively on you. For this reason, you may want to think twice before canceling a credit card that you’ve had for a long time.
  • How often you apply for new credit
    • If you’re applying for new credit accounts frequently, lenders may take this to mean that you’re having financial difficulty. Only apply for new credit when you need it.

As you can see, the keys to improving your credit history are to not borrow too much and to pay your bills when they are due. Doing this won’t fix your credit score overnight, but over time it will help improve your credit score.

Other Bad Credit Debt Help Options

A debt consolidation loan isn’t the only option for those looking for bad credit debt help. Other debt solutions could be preferable.

Other debt relief options include:

  • Consumer proposal

    • A consumer proposal is a legal process through which you make an offer to your unsecured creditors to repay a portion of what you owe. The remaining debt is eliminated once the proposal is complete.
    • If the creditors that are owed the majority of the debt vote to accept the proposal, then all are bound by its terms.
    • A consumer proposal allows you to effectively reduce the overall amount of debt that you owe to the amount in the proposal.
  • Personal Bankruptcy

    • Bankruptcy is typically the last option considered, but it can be the right choice depending on your situation.
    • In bankruptcy, your debts are eliminated and you can start your financial life fresh.
    • You may lose assets as a part of the bankruptcy process, depending on what you own. You may also have to make surplus income payments, depending on your income.

Both bankruptcies and consumer proposals are legal processes. This means you receive protection from your creditors once you file. They cannot take any legal action against you to collect their debts and any actions that have started must stop.

Understanding all the available options and what each option could mean for your financial situation is important. The more information you have, the better decision you will be able to make.

Determining the Right Bad Credit Debt Help Option for You

It can be tough to find the right bad credit debt help solution when you are struggling with debt. That’s because each financial situation is unique. Since everyone has different financial circumstances, there is no single solution that is perfect for everyone. This is why it’s important to look at all available options, compare the pros and cons of these options to your situation, and then decide what is right for you.

Meeting with a Licensed Insolvency Trustee can help you understand the available debt relief options and how they may apply to your situation. Most trustees offer free consultations where they will review your situation, give you information on the available options, and answer any questions you may have. It is then up to you to determine what option makes the most sense for your situation.

Trustees will always give you details on all available options, not just the ones they can administer. The trustee code of ethics requires that they give details on every option. This means that someone who is searching for bad credit debt help can get the details they need to find a way to solve their financial issues.

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