Debt is something that most people will deal with at some point in their lives. Unfortunately, some people aren’t able to manage their debts well and end up owing way more than they are able to pay off. While overspending is a common culprit here, so is job loss, or having some unexpected expenses come around. All of this debt (and not paying it off) can often lead to bad credit, which can only add to the stress and worry often associated with debt.
What is revolving debt? Find out here.
Whatever the reason, you might feel quite hopeless and that you are now stuck in an endless cycle of debt and bad credit. However, that is not the case. There are many solutions out there that can help you manage your debt, even if you have bad credit. One of the options is debt consolidation. This article will look at bad credit debt consolidation and how it might be able to help you get your finances on track.
What is Bad Credit?
Before we look at debt consolidation, we need to know and understand what bad credit is. Bad credit is basically when your credit score is low and/or your credit report has some negative items. This can be as a result of missed debt payments, late payments, overusing a credit card, filing for bankruptcy, and more.
While the term “bad credit” is quite general to some, there are some guidelines about what sort of credit score would be considered “bad”. If you aren’t aware, the credit score system in the United States ranges from 300 on the low end to 850 on the high end. Anything from 300-629 is generally considered a bad credit score.
The reason knowing about this is important is because while you can often still get loans or debt consolidation with bad credit, it can be a little bit more expensive and more difficult. If you find yourself with bad credit, you should take steps to rectify it, such as paying off outstanding debts, not making late payments, and keep your credit utilization low.
Click here to know what really happens when you ruin your credit.
What is a Debt Consolidation Loan?
Now that you know about bad credit, let’s make sure you are up to speed on debt consolidation loans. Debt consolidation is when you essentially combine all of your debts into one, larger loan. Instead of having to worry about making multiple loan payments every month, you will only have to worry about one, which is generally much easier to keep track of.
Be sure to make your loan payments on time, otherwise, this could happen.
In addition to that, many people consolidate their loans in hopes that they will get a cheaper interest rate, which will save them money in the future.
There is the potential of getting an unsecured debt consolidation loan, but they can be more difficult to get, especially if you are looking to consolidate a sizable amount of money. Instead, many people opt for a secured debt consolidation loan. You can often get a lower interest rate but must put something of value up as collateral in case you default.
The Advantages of Debt Consolidation
There are many different benefits and advantages of debt consolidation. Perhaps the biggest is that all of your previous debts will technically be paid off, and you will only have one loan to worry about paying back, instead of multiple. In addition to that, all your debts will be consolidated in a single place, which means no more having to deal with multiple different creditors.
Another benefit is that you will often consolidate your debt at a lower interest rate than you had before, which is a huge help in getting the debt paid off quickly. Also, you will generally have a set time frame in which the new debt will be paid off, often 3-5 years. This will help you plan out the repayment and ensure you always make your payments on time.
Debt Consolidation with Bad Credit
As we mentioned briefly earlier in the article, you are still able to consolidate debt with bad credit. So if you are struggling with a damaged credit and feel hopeless, you shouldn’t. The first step you should take is to reach out to a credit counselor, as they should be able to help you through the process. There are many programs that deal specifically with bad credit debt consolidation, which will be perfect for you.
While you may not get the same great debt consolidation terms and interest rates that someone with an excellent credit score will get, there is a good chance you will still be able to get one. The worst that can happen is that you get denied and get told what you need to improve, so it’s worth a try.
Will debt consolidation damage your credit score even worse? Read this to find out.
Debt Management Program
While debt consolidation is a great option whether you have bad credit or not, it is not the only option at your disposal. You can enter a debt management program, which will also help you with money management in addition to debt relief. They will help you set a budget, create a repayment plan, and ultimately become debt free.
Still having trouble fixing your bad credit? It might be time to seek credit counseling.
Debt Settlement or Bankruptcy
If your debt loan is really bad and you feel that you cannot escape it on your own (even with help), there are some more extreme options that you can try. These are debt settlement or bankruptcy. Debt settlement involves only paying back a portion of your debt, but it will negatively affect your credit report in a big way. Bankruptcy involves your debts being eliminated, but will likely cost you a large number of your belongings and will negatively affect your credit score as well.
Read this for more information about your bankruptcy score.
Both of these options do work and in certain situations are the right way to go. But it is important to understand that you should exhaust all other options before you decide to settle your debts or file for bankruptcy.
Need Help Consolidating Your Debt?
Debt consolidation is definitely something to consider for debt relief assistance, even if you have a bad credit. It will not only make your life and finances simpler to manage, but you could even get a lower interest rate. If you’re considering debt consolidation and are looking for help, Rebound Finance has the right options for you.