If you’re struggling to pay off multiple debts with high-interest rates, you might find that trying to get a consolidation loan with bad credit is very difficult. But if you have “fair” or better credit and can get approved for a consolidation loan, it can be an easy way to lower your monthly payments, reduce the number of creditors you owe, and shorten the time it takes to pay off your debt.
This type of loan involves taking out a new loan to pay off card debt and other high-interest loans and thereby reduce monthly payments. People may use personal loans, low-interest balance transfers from credit cards, or debt management plans for consolidation.
Can I Consolidate Debt With Bad Credit?
The FICO® Score, which ranges from 300 to 850, is the most commonly used credit scoring model by lending partners for evaluating a borrower’s creditworthiness. A “fair” score ranges from 580 to 669 and any score that is lower than 579 is considered “poor.” Knowing your credit score is important in determining your options, but even with less-than-perfect credit, there are still ways you can consolidate your debt – but is debt consolidation harmful to your credit?
Debt Consolidation: Benefits
Debt consolidation allows you to consolidate all your existing debt into one new loan, which can simplify the monthly task of making payments. By eliminating multiple lending partners, you only have to make one payment to your new loan provider. This can save you from dealing with late and missed payments—which can occur when juggling multiple different payments each month.
A large portion of your FICO® Score is based on your payment history, which accounts for 35% of your score. Late payments can occur when you have multiple loan payments each month and are not using autoplay.
Consolidation loans can help you pay off your high-interest debt and reduce the amount of interest you’re paying on your outstanding balance. Many people use a debt consolidation loan to pay off their credit card debt, which typically has an interest rate of 18-25%. The lower interest rate on consolidation loans can save you money in the long run.
If you consolidate card debt into a new loan with an average APR of 17% over 36 months, you will pay $1,700 less in interest and your monthly payment will come down to $200. A lower APR on your new loan means you will pay less toward interest over time.
How Can I Qualify For Consolidation Loans?
Can you get a debt consolidation loan with bad credit? Some debt consolidation loans might not be appropriate for people with poor credit scores. Given the risk involved, lenders often refuse to issue loans to people in the lowest credit score ranges.
Another potential drawback in order to get a debt consolidation loan with a bad credit score is that the interest rate on your new debt may be higher than the APR on your existing debts. Lenders often use the creditworthiness of a borrower to determine the interest rate for a loan, so people with “poor” or even “fair” credit scores should be careful not to take on new loans with higher rates.
How To Get A Debt Consolidation Loan With Bad Credit
Get Your Debt-To-Income Ratio Improved.
If you have debt, there are a few things you can do to make it more manageable. One option is to try and increase your income. This way, you can pay off small debts and improve your ratio. Lenders use this ratio to evaluate your ability to repay a loan.
You Should Add A Co-Signer
Co-signers can help you qualify for a loan and get a lower rate, which is beneficial if your credit score does not meet the lender’s minimum requirement. Before you decide to take out a loan with a co-signer, it is important to keep in mind that they will be just as responsible for the loan as you are.
Compare Interest Rates
When you’re looking at how to get a debt consolidation loan with bad credit, it’s important to compare rates and terms from multiple lenders to find the best fit for your budget. You can pre-qualify with many online lenders and see estimated rates without affecting your credit score. This is done through a soft credit check.
Check Your Credit Report
One common reason why your credit score might be low is because of errors on your credit report. These can include wrong accounts, incorrectly reported payments, or inaccurate credit limits. Checking for these mistakes and getting them corrected can help improve your score.
Even a small increase in your credit score can make a big difference. Moving from bad to fair credit (a FICO score of 630 to 689) could lead to a more affordable loan with lower interest rates.
Options For Military Members Seeking Debt Consolidation Loans
The military lifestyle can make it more difficult for active-duty members to obtain new credit from conventional lenders. Spending extended periods away from home without the need to take loans and utilize lines of revolving credit, members of the military can often have a less robust credit history than civilians.
In addition, private lenders offer customized financing services to military members. These lenders are able to provide car loans, mortgages, and loans that can be used for debt consolidation.
For those in the military, taking out a loan with a military lending partner can be an option for consolidating existing debt. Lending partners do consider applicants with lower credit scores, but they may still find severely compromised credit histories risky.
Other Options For Debt Consolidation
Consolidation may not be the best solution for everyone. Some people may find that other debt management tactics are a better fit for their needs. Depending on your financial situation, you may want to consider 2 alternatives for debt consolidation.
Debt Management Plans
If you’re thinking to get a debt consolidation loan with bad credit, you might want to consider consolidating your debts with a debt management plan first. This involves working with a credit counselor to come up with a repayment plan, and then sticking to it. The counselor may also be able to negotiate lower monthly payments and interest rates with your creditors.
In this situation, you would pay the counseling organization directly each month, and they would make your monthly debt payments for you. Once the counselor has finished negotiating on your behalf, you can begin making these monthly payments.
If you’re looking to get debt consolidation loans with bad credit, a debt management plan may be a good alternative to a consolidation loan. With a debt management plan, you work with a credit counseling agency to develop a budget and make monthly payments to your creditors.
Using Credit Cards
Credit card debt can be a huge burden, but by following some simple tips, you can quickly get your debt under control. First, make sure you always pay your bill on time. Late payments can result in costly fees and damage your credit score. Second, try to pay more than the minimum payment each month.
Budgeting
Having a budget is key to taking control of your finances and knowing how much you can afford to pay each month towards your debts. By setting aside a fixed amount each month, you can make headway on your goal of becoming debt-free.
Filing For Bankruptcy
Many people find themselves in debt and feel like there is no way out. Bankruptcy may be a way to get relief from this stress. However, it is important to know that filing for bankruptcy will stay on your credit file for several years and may make it harder to get approved for loans in the future.
If you’re struggling to keep up with your debt, it may be time to seek out debt relief – especially if you are seeking payday loan consolidation. A consolidation calculator can help you see if this is the best option for you. Be sure to work with a reputable company.
