How Does Bad Credit Debt Consolidation Work
Bad credit debt consolidation loans works in the same way as regular debt consolidation loans. A bad credit debt consolidation loan allows people with bad credit and overwhelming debt to consolidate their finances into one easy loan. This means that instead of paying multiple credit repayments each month, an individual with bad credit can simply pay one monthly repayment, giving them more financial control and a heightened ability to pay back their debts.
Even better, bad credit debt consolidation loans may allow you to secure a lower interest rate than the combined rates of your current debts. This has the potential to save you hundreds of dollars each month!
If you need debt consolidation loans for bad credit, the friendly team at the Australian Lending Centre can give you the information you need to see if one of our bad credit debt consolidation loans is right for you.
How Debt Consolidation Can Help You
If youre currently considering debt consolidation and feel as though its the right option for you here are a few of the advantages you can look forward to:
Youll be surprised at how consolidating your debts into one easy to handle payment will make your life significantly less stressful.
If you choose to work with a professional credit counsellor youll have to pay a fee but its usually manageable and it wont affect your ability to pay off your debts.
The main goal of a debt consolidation loan is to get a lower interest rate. This means more of your money will be going towards paying off your actual debts and youll become debt free faster.
While some might not consider this an advantage, being placed on a payment schedule not only means youll be accountable to someone but youll know your debt free date which is a great motivator for most people.
All your debts are combined under one loan. Instead of dealing with different creditors, you take out one loan to pay them all at the same time thereby, giving you more control over your finances. You will also have an easier time keeping track of your debt repayment and your finances in general.
Learn how to tackle your debt without debt consolidation, here.
Are Consolidation Loans Worth It
In most cases, it is a good plan financially. It can take one or many high-interest credit cards or debt you have and roll them into one lower interest rate loan. As a result, you will now only have to worry about one monthly payment as opposed to several. Make sure the interest rate for the consolidation loan is much lower than your current payments and interest rates. Otherwise, the consolidation loan might not make much sense. In addition, youll want to pay attention to any fees that may be associated with the transaction.
Reducing your total debt is always a good idea and will lower your debt-to-income ratio. This can raise your credit score and make you appear more financially stable. Initially the debt consolidation loan may not lower your total debt but over time it should. You should now have one fixed monthly payment and a set term. This means as long as you make the monthly payment for the full loan term, your balance should be $0 by the end of the term.
If you are having trouble remembering all your payments and when to pay them, consider a debt consolidation loan. It can be a smart way to reorganize debt while making it easier to manage. Sometimes having a new payment or new perspective will give you the resources and time you need to get to your money in order and make the payments on time.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
How To Apply For A Debt Consolidation Loan
If your credit score is under 660, put the credit cards away for six months and work on improving it. Also, check your credit report for errors that lower your score.
If you have a relationship with a local bank or credit union, apply there first. If not, this is a good time to start one by opening an account. Bring financial records , a Social Security card and some form of state identification.
Be prepared to present a case as a reliable borrower. Show them a budget or proof of recent, responsible financial behavior. Dont acquire more debt.
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Government Debt Relief Vs Debt Consolidation
Life can be expensive, thus forcing some of us into debt that we cannot manage. There are government programs that can help with debt relief. For example, you can access credit card counseling services through the government. Learning how to properly manage your finances is critical and resources are available. In some states, you may even be able to qualify for financial aid to help with debt relief. Debt consolidation is an action that you need to drive. Its a choice that you need to make if your debt is unmanageable or costing you a fortune in interest. If you are buried in debt and unsure of what the right decision is, you should use a government resource to receive professional financial advice.
Best For No Fees: First Midwest Bank
- Time To Receive Loan:1 Days
- Loan Amount:$5,000 – $35,000
First Midwest loans have an exceptionally low APR range and relatively few fees. Even with the $150 documentation fee rolled in, rates can be as low as 5.23% and won’t exceed 12.99%.
No origination fee or late fee
Co-applicants are allowed
Only available in 24 states
$150 documentation fee
As of early 2022, First Midwest Bank is in the final stages of a merger with Old National Bank, which is headquartered in Indiana. First Midwest currently has branches in four states with over 250 physical bank locations.
The bank is outstanding when it comes to interest and feesâor the lack thereof âwith an APR range starting at 5.23% and maxing out at 12.99%. There’s no origination fee or late payment fee. Borrowers should be aware of the $150 documentation fee, however, which will be rolled into the loan’s APR.
A wide range of loan amounts is available from First Midwest, from $5,000 to $35,000, with repayment terms up to seven years. Funds can be received in as little as 24 hours.
First Midwest is also a certified personal loan lender through LendingTree, where it’s received 4.9/5 stars based on more than 4,000 reviews. It gets excellent ratings for its fees, closing costs, and customer service.
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Can You Get A Debt Consolidation Loan With Poor Credit
This usually depends on the lender. Some lenders may have less strict requirements and loans that are designed for bad credit borrowers. If you can qualify for a debt consolidation loan with bad credit you should be prepared to pay high interest rates and high loan fees.
If you have poor credit, you might want to consider taking a few months or longer to rebuild your credit score before applying for a new loan. In some cases, the debt consolidation loan may be part of your plan for improving your credit score. If this is the case, you may want to apply and see if you can qualify. The worst case is that you will not qualify.
Improve Your Credit Score
Improving credit scores isnt just a national trend these days, its becoming a national passion.
- Pay your bills on time. You could see an improvement in six months if this was the only step you take.
- Pay down the balance on all credit cards. Make some sort of payment even just the minimum on every card you own. Lower balances lead to higher scores.
- Dont ask for any more credit cards. Seeking more credit when youre already far behind is a huge negative.
- Check your credit report. There may be reporting errors that cost you. More than one third of consumers found at least one error on their credit report. You get one free from each of the three reporting agencies. Take advantage of it and see if it helps improve your score.
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Debt Consolidation Loans For Bad Credit
Banks and credit unions want debt consolidation loan applicants to have good credit. This means if you have poor credit you likely wont get approved for a debt consolidation loan from one of those financial institutions. But, this doesnt mean you cant consolidate your debt. Individuals with low credit should consider the following options if they are looking to consolidate high-interest debt:
- Secured debt consolidation loans from alternative lenders
- Asking someone to cosign their loan
Can I Get A Debt Consolidation Loan With Bad Credit
It may be possible to get a debt consolidation loan with bad credit. However, its important to realize that a lower credit score will likely mean a much higher interest rate on the loan. You must evaluate whether the interest rate you can qualify to receive will provide the benefits you need from consolidation.
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Do You Need Excellent Credit To Get A Debt Consolidation Loan
A credit score of about 650 is usually the general starting range when it comes to lenders being willing to give you a debt consolidation loan. Some lenders might accept borrowers with scores of 600 or less, but this is rare. The lower your credit score, the higher your interest rate will be. If you are only offered a loan with high interest, try to spend a few months raising your credit score before trying to apply for another loan. This usually involves lowering your current debt-to-income ratio. You will also need to make all your payments on time and ensure that your credit card utilization is not over 30%.
If you have an excellent credit score, it should be much easier for you to get a new loan with favorable terms. Borrowers with excellent credit are considered highly-qualified applicants with less risk than a borrower with bad credit. Therefore, lenders should be much more motivated to offer you a loan with a low interest rate.
Whether you have excellent credit or fair credit, its important to compare loan offers. So how do you compare loan offers? The best way to check and compare loan offers is through Acorn Finance. Our network of top national lenders compete for your business. All you have to do is submit an online form and see what you qualify for. Checking offers at Acorn Finance does not impact your credit score.
What Exactly Does It Mean To Consolidate Your Debtsand How Does This Work
In Canada, your debt can be consolidated in 2 ways. The first method is to borrow money that you then use to pay off all your unsecured debts. If done properly, youll only have to worry about repaying that one new loan instead of the multiple bills you had before. However, doing this only makes financial sense if the new loans interest rate is lower than the interest rates of your other debts. Otherwise, youll end up paying more in interest for the same amount owing.
The second method is to consolidate your debt payments through something like a debt management program. Instead of making a smaller payment to each creditor you owe money to every month, youll make 1 larger payment to your debt manager, who will then split that payment for your creditors. Like consolidating with a loan, this makes it easier to keep track of your payments. If the debt manager is with a non-profit credit counselling organization like CCS, they can also help negotiate better repayment terms like a lower interest rate or more favourable amortization period .
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How Your Credit Score Impacts Your Interest Rates
Lenders offer different interest rates based on the risk that the borrower will not repay the loan. Its known as risk-based pricing, and the bottom line is simple: The lower the risk, the better the price, which in this case is lower interest rates.
Sometimes the risk is too great to qualify for a consolidation loan. For example, Prosper, an online lending company, requires a credit score of 640 or higher. Lending Tree, another online source requires a 660 or higher.
The average credit score is 716 in 2022, but 16% of consumers have scores lower than 580 and likely would be turned down for a consolidation loan. Another 17% are under 670 and likely would find it difficult to get a loan that didnt include high interest rates.
Its a catch-22 for people with low credit scores, but there are alternatives, specifically a debt management program.
Its Tough To Deal With Debt Especially When Youre Struggling With Credit Too Mounting Debt May Affect Your Credit Scores Negatively And Bad Credit Can Make It Difficult To Qualify For Lower
A debt consolidation loan may seem like the perfect solution to getting your monthly payments under control. But finding a debt consolidation loan with bad credit can be difficult. In fact, even if youre approved for a debt consolidation loan with bad credit, you might not receive a better interest rate on the debt youre consolidating. And you may wind up paying more in fees and interest.
Its possible to get a debt consolidation loan with bad credit. But its important to be aware of the drawbacks, including high interest rates and other costs, that are typically associated with bad credit loans.
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Best Debt Consolidation Loans For Bad Credit
- Large, Well-Established Lender: LendingClub
- Option for Secured Loans: OneMain Financial
- Potentially Fast Funding: Avant
- Payday Loan Alternative: Veridian Credit Union
LendingClub is a pioneer in online lending, and you could be considered for approval with any credit score LendingClub doesnt publish a minimum score. You can also apply for a loan with a co-borrower, which may improve your chances of getting approved.
Borrow as little as $1,000
You can have a co-borrower
36 months and 60 months are the only repayment options
Secured Or Unsecured Loan
When choosing between a secured and unsecured loan, you should be aware of what these both are. For bad credit, secured may be the best option as youll traditionally be offered lower interest rates. However, the loan may be secured against an asset such as property. If you fail to make the repayments, this asset could be put at risk.
With unsecured, assets arent placed at risk but interest rates could be higher. Your advisor will confirm which option may be most suitable for you and, ultimately, they will strive to find you the best deal possible.
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How Lenders Evaluate You: Debt
Debt-to-income ratio is a measure of the percentage of your gross monthly income that is used to make monthly debt payments. It is a favorite tool for lenders in evaluating a consumer who is looking for a loan.
To calculate your debt-to-income ratio add up all your monthly debt payments and divide that number by your gross monthly income. For example, lets say you are paying $1,300 a month for your mortgage, $400 a month for a car and $500 a month in other debts, you have $2,200 in debt payments.
If your monthly pre-tax income is $5,000, your debt-to-income ratio would be 44% divided by gross income = 44%). That would be a problem for lenders, who typically get skittish when the debt-to-income number climbs above 35%.
In this example, you could lower your DTI by reducing your car payment and the amount spent on other debts. Getting the number under 35% would help make lenders look more favorably on your loan application and offer you better interest rates and terms.
Alternatives To A Debt Consolidation Loan
Its important to know that debt consolidation isnt the only way to deal with debts youre struggling to repay. Here are some options that may help you pay down your current debt without creating new debt.
- Reach out to your current creditors. They may be willing to negotiate repayment terms that are more manageable for you, rather than see you default on your debt.
- Consider credit counseling. A to help you get out of debt faster and credit counseling is usually free.
- Consider a 0% intro APR balance transfer credit card. If youre working to pay off credit card debt, consider balance transfer options with an introductory 0% APR credit card.
- Look into a home equity loan. If you have equity in your home, you may be able to get a home equity loan or line of credit to pay off high-interest debt. Because the loans secured by your home, you may qualify for a lower interest rate. But be careful: If you default on your home-equity loan, the lender could take your home.
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