Ways To Get A Debt Consolidation Loan With Bad Credit
If your monthly debt payments are weighing heavily on your finances, it could be that the APR you’re paying is too high. The good news is that you could pay down your arrears more affordably using a bad credit debt consolidation loan.
Let’s take a look at the consolidation process in more detail. In addition, we’ll outline some strategies you can use to make for repayments more manageable.
Debt Consolidation 101
If this is the first time you’re thinking of consolidating your arrears into just one, you’re probably wondering how the process works. Here’s what you need to know before you decide to apply for this type of financing.
- This type of lending product is designed to help you save on your monthly repayments. Instead of servicing multiple loans with high APRs, you’ll want to secure a single source of financing that covers the total value of your debt. This option offers a lower interest rate and associated fees than you’re currently paying
The table below illustrates what kind of savings you might enjoy by consolidating at a more affordable interest rate.
High APR Loan
Consolidation Loan (10% APR over 48 months)
In the above scenario, your monthly payment could drop from $290 ($165 + $125) to just $140. Moreover, your balance could be paid down in as little as four years.
How Bad Credit Affects Your Chances Of Consolidating Your Debt
As with all lending products, your chances of qualifying for a consolidation loan will be higher if you have good credit. Your chances of securing a competitive APR will also increase when you have a high score.
- If you don’t know your rating, you can easily find out by requesting your free annual credit report from the three major bureaus: Experian, Equifax TransUnion. If your score is below 580, you’re likely to fall into the bad credit category. However, it doesn’t mean you can’t qualify for a consolidation
- It’s important to note that one of the primary purposes of refinancing your arrears is to make it more affordable. If your score is preventing you from obtaining a favorable interest rate, you may want to take steps to improve your numbers before you apply
The Different Types Of Consolidation Loans
There are consolidation options available for almost every kind of debt. Moreover, different lenders tend to specialize in particular types of refinancing.
These are some of the most popular types of consolidation financing products:
- Medical debt refinancing: If you took out a loan to cover the cost of medical or dental care and find that your monthly repayments are simply too high, you’d want to refinance before you end up defaulting or skipping payments
- Private student debt consolidation: College graduates who financed their studies using private student loans often have trouble making regular payments due to the high-interest rates and other fees associated with this type of lending. If you find yourself in this situation, you’ll be happy to know that several lenders provide student debt refinancing
- Balance transfer credit cards: If your current card has a high APR preventing you from paying down your total outstanding debt, you may want to opt for a balance transfer card. This will allow you to transfer the full amount you owe on your card to a new account and pay it down at a lower APR
Alternatives To Consider
Suppose you’re unable to qualify for a consolidation loan. In that case, several alternative financing options could help you pay down your arrears and avoid the negative consequences of defaulting on your accounts.
- Negotiate a repayment plan: If you can’t make your monthly payments, the first thing to do is reach out to your creditor and tell them about your financial circumstances. In addition, try to enroll in a hardship program
- Rethink your monthly budget: If you’re unable to make your current repayments due to a shortage of funds, you may need to draw up a monthly budget to reduce your expenses. The surplus you generate can be used to pay down your high APR debts, lower your credit balances, and improve your FICO score
The Bottom Line
Debt consolidation is an excellent strategy for lowering your credit repayments’ monthly cost. By merging your arrears into just one, you could pay down your outstanding balance at a lower interest rate.
You can still apply for this type of lending product if your creditworthiness is less than stellar. Although a good FICO score will help you secure the best possible terms and APR.