When you’re dealing with a lot of debt, it can be a very daunting feeling. This is especially true if you’re unable to keep up with your payments. Not being able to keep up with payments can lead to a ton of financial hardships, such as bankruptcy. But before simply lying down and succumbing to your inevitable bankruptcy, there are some things you can try.
Click here to know what else happens if you can’t make your loan payments on time.
One solution you can try is a debt consolidation loan. They are a solid option that thousands of people go with every year in the United States. However, getting a debt consolidation loan with bad credit is often not a possibility.
Instead, you might have to enter a debt management program or use your home equity in order to get the loan. Now, dealing with all of these things that we have mentioned so far can be very stressful and confusing, especially if you don’t have a lot of experience with finances. With that in mind, we’re breaking down everything you need to know about debt consolidation when you have bad credit.
What is Bad Credit?
If you have bad credit, getting affordable loans and other financial assistance can be quite difficult. Having good credit shows potential lenders that you are less of a risk and have a better chance of paying back any money you borrow. Bad credit shows that you come with a little bit of risk and have been late on payments or misused borrowed money in the past.
Do You Have Bad Credit?
So, what is bad credit? Well, in the US, credit scores can range from 300 to 850. Of course, the higher your score, the better your overall credit health is, generally. Bad credit is normally anything under 600, but every lender will have their own terms and rules about what scores they consider bad and who they will work with.
Having trouble understanding your FICO credit score? Try reading this.
How Does Somebody Get Bad Credit?
Bad credit usually occurs when a person misuses their credit for a certain length of time. This could be anything from missing payments, taking out too many loans within a short period, or having a high credit utilization rate. While experiencing these issues once or twice shouldn’t have a massive effect on your credit, if it becomes a habit, you will see your credit begin to drop quickly.
Fixing bad credit can take some time, but can be done by doing things like ensuring you always make payments on time, keeping your credit utilization low, and just generally using credit in a safe and responsible manner. Once you have done that for a long enough period, you will see your credit begin to rise.
Check this out for some ways of improving your credit score today.
What is a Debt Consolidation Loan?
This type of loan is a tool used by consumers when they want to get out of debt fast. A debt consolidation loan involves rolling all of your many debts into one larger loan. So basically, taking out one large loan to pay off all of your existing smaller loans.
Will debt consolidation damage your credit score? Find out here.
This is commonly done to make paying down debt much simpler, as you will only have one bill to pay every month instead of multiple. People also go with debt consolidation loans frequently to get a better interest rate, which will help them save money in the long run.
Of course, it isn’t the only method of getting out of debt quickly, but it is among the most popular. There is also credit counseling, debt settlement and more. Before going with an option, you should do your fair share of research and perhaps even speak to a financial expert to see what they feel is a good idea for your unique situation.
To learn the difference between debt consolidation and debt settlement, look here.
What are Debt Management Programs?
While it would be great to be able to get a debt consolidation loan even though you have bad credit, that doesn’t always work out for all consumers. If you have bad credit, you may need to explore other options. One option that many people choose is a debt management program.
A debt management program is a service that is provided by credit counselors that can give you a simplified plan to pay off your debts, similar to a consolidation loan. You will work directly with a counselor who will look at your unique situation and come up with a payment plan that works. Each month, you’ll provide them with a lump sum payment and they will handle the distribution of the money to your lenders.
This simplifies the process for you greatly and these programs can have you debt-free in 5 years or less, which is very exciting if you have been dealing with debt for a long time. Of course, your creditors must agree to the plan. It will also affect your credit score and report. While it isn’t a solution for everyone, it is one of the only options of its kind for those with bad credit.
For some more methods of bad credit debt consolidation, read this.
Using Home Equity to Get a Debt Consolidation Loan
If you don’t feel like entering a debt management program is the right option for you, there is another way to get a debt consolidation loan, even if you have bad credit. If you own your home, you can use your home equity to get something similar to a debt consolidation loan.
You will borrow money against your home and that money can be used to pay off your existing debts. This is often called refinancing your home or a second mortgage. Keep in mind that with this option you’re potentially putting your home at risk to pay off consumer debt. A home equity loan can be a great option, just make sure you fully understand the consequences.
Can you get a home equity line of credit if you have bad credit? Find out here.
Choosing The Right Option
If you have bad credit and are interested in entering a debt management program, we can help. Rebound Finance can connect you with the best debt consolidation program to meet your needs.