Your monthly debt responsibilities may be streamlined with a debt consolidation loan, which can help you pay off your debt more quickly. However, not everyone should use this debt management technique. Additionally, being approved for a debt consolidation loan with a competitive interest rate may be difficult if you have terrible credit.
It’s important to weigh your alternatives if you wish to pay off high-interest debt and have poor credit. Some debts, particularly those with very high interest rates like payday or title loans, may benefit from bad credit consolidation loans. Additionally, there are other choices that could still be able to help you pay off your debt over time if you are not eligible for a debt consolidation loan with an affordable interest rate.
Based on 11 data points in the areas of loan specifics, loan pricing, eligibility and accessibility, customer experience, and application procedure, we evaluated 15 well-known lenders. Based on the weighting given to each criterion, we determined which lenders were the best:
- Loan expense: 30%
- Accessibility and eligibility: 25%
- Loan information: 20%
- 15% is paid directly to creditors.
- Customer satisfaction: 10%
We also took into account a number of factors within each category, such as possible loan amounts, payback periods, APR ranges, and associated costs. Additionally, we considered the minimum credit score criteria, whether or not co-signers or joint applications are accepted by each lender, and the geographic reach of the lender. Finally, we assessed how readily available the customer service staff of each company was.
Tips for Comparing Bad Credit Debt Consolidation Loans
The three suggestions that follow might help you compare poor credit debt consolidation loans and locate a deal that could be suitable for your circumstances.
Get several estimates
Any time you’re looking for financing, it’s a good idea to compare offers from other lenders and shop around. By doing this, you could be able to get a debt consolidation loan for hundreds or even thousands less money. If you can locate lenders that provide prequalification services with soft credit inquiries, you won’t run the danger of rate shopping lowering your credit score.
Don’t ignore the small print
If you’re looking for a personal loan but have terrible credit, one of your greatest obstacles can be obtaining a reduced interest rate. But many consumers disregard the possibility that loan fees might raise the cost of borrowing money. If there are any extra fees or charges involved with a prospective loan, be careful to read the small print so you can decide if consolidating your debt with a certain lender makes sense.
Run the numbers
It would make sense to proceed if you can be approved for a debt consolidation loan with an interest rate that is lower than the one you are paying on your current bills. But before you take any formal action, it’s crucial to confirm the savings potential. You may use an online loan calculator to compare your present debt payments to the prospective expenses of a new loan, both in terms of monthly payments and total interest and fees.
What Is a Debt Consolidation Loan?
A personal loan called a debt consolidation loan enables the aggregation of many outstanding obligations into a single account. After consolidation, you will just have one monthly payment to make to the new lender as opposed to your previous numerous loan and credit card instalments.
Additionally, you may be able to save money and improve your credit score with a consolidation loan. Particularly with credit card debt, paying off revolving accounts with an instalment loan might decrease your credit usage rate and, as a bonus, raise your credit score.
Where Can Someone With Bad Credit Get a Loan to Consolidate Debt?
Credit scores are used by lenders to assess risk. Unfortunately, when you have terrible credit, conventional lenders like banks may not feel comfortable giving you a loan to consolidate your debt. However, there are certain lenders that could be willing to deal with you despite your poor credit history.
Online lenders could provide debt consolidation loans with less restrictions for credit scores. To make up for the increased risk, debt consolidation loans for those with weak credit sometimes have higher interest rates and occasionally fees. Debt consolidation cannot result in cost savings if the interest rate you are eligible for is too high.
Unions of credit
If you wish to consolidate debt but have a low credit score, credit unions are another option to take into account. Credit unions, in contrast to commercial banks, are often more inclined to accept applicants with less-than-perfect credit; nonetheless, membership is necessary. To discover a credit union that will work with your circumstances, you may have to look about for a local credit union or an online credit union.
How to Get a Debt Consolidation Loan with Bad Credit
The fundamental loan shopping procedure is the same whether you have poor credit or excellent credit.
Start by reviewing your credit
When you apply for a debt consolidation loan, a lender will probably look at one of your credit reports and credit ratings. Therefore, before submitting loan applications, you should check your credit from each of the three credit bureaus—Equifax, Experian, and TransUnion—to understand where you stand.
Look for lenders who will be a good match
Consider that you’re FICO score is 580. A lender that wants a credit score of 660 won’t cooperate with you in this situation. However, a lender with a 560 minimum credit score demand may be on your list of potential lenders.
Analyze your loan possibilities
With a soft credit check, you may prequalify with certain lenders and see what interest rate they would be willing to give you. You can limit down your loan alternatives after you identify potential candidates for you.
Send in your application. Filling out an official loan application with a lender is the last step in obtaining a debt consolidation loan. Give the lender any information or papers it needs as soon as possible to prevent any potential issues.
Alternatives to Debt Consolidation Loans for Bad Credit
Not everyone should opt for a poor credit debt consolidation loan. You may want to think about the following debt relief options if your credit prohibits you from getting a lower interest rate than you already are.
First, improve your credit
Numerous benefits come with having good credit, one of which is being able to get better financing. If you’re not currently in a position to get a debt consolidation loan with a favourable interest rate, striving to raise your credit score may open up more choices for you in the future.
When developing your credit improvement strategy, keep in mind that your strategy may need to change depending on whether you’re establishing new credit or trying to repair damaged credit. Either approach might take some time, but the long-term benefit of improving your credit can make your efforts worthwhile.
Use a Debt Repayment Plan
A debt payback plan could be effective for you if your monthly budget has some wiggle space. You have to reorganize how you pay down your debt each month when you employ do-it-yourself tactics like the debt snowball or debt avalanche approach. In the end, each strategy has the potential to reduce the amount of time and money you spend paying off your debt.
Get Expert Assistance
Sometimes, high-interest debt, such as credit card debt, may get out of control. It may be time to speak to a financial expert about your position if you’re finding it difficult to make even the minimal payments on your monthly credit obligations.
A nonprofit credit counselling organization can provide options for you, such as a debt management plan. In severe circumstances, you may even wish to see a bankruptcy lawyer for assistance on strategies that might shield you from creditors.