If you’ve got debt that’s spiraling out of control, you may start noticing ads promoting loans for debt consolidation. If you’re considering consolidating loans, it’s important to have some basic information first. Also, be aware of other debt consolidation options that don’t require you to borrow money. And how does your credit impact you consolidating loans? For many people with low credit scores, debt consolidation might actually help improve their situation.
What Does Consolidating Loans Mean?
Bad credit doesn’t mean you don’t have any options, but it does mean your choices are limited. Let’s take a look at how to find debt consolidation loans with bad credit. Consolidation loans combine most, if not all of your unsecured debt and make one single monthly payment. In simpler words, it means you pay old loans with a new loan.
Problems With Consolidating Loans
Loans for debt consolidation come with costs and risks that consumers should be aware of before signing on the dotted line:
- Consumers typically turn to consolidation loans when they’re having significant debt problems. They’re vulnerable and perhaps even desperate. It’s no surprise then that consolidation loans often carry hefty interest rates.
- Homeowners may be able to avoid the steepest interest rates by taking out a home equity loan. However, this “solution” brings with it the potential risk of foreclosure if the equity loan isn’t paid on time.
- Taking a loan to pay down your current credit card balances leaves open the risk that you’ll then run those cards back up again. This leaves you with more debt than you had at the start. Therefore, it can seem like trying to get out of a hole by digging deeper.
Consolidating Loans & Credit
Are you aware of your credit score? If you are headed towards consolidating loans, it is always a good idea to know the numbers. You can get a free, safe credit score report from AnnualCreditReport.com. If your credit rating is very low, counseling is a good idea. Bad credit often involves a lack of financial skills or knowledge. The better your credit, the better rates you will get from lenders.
Debt consolidation with bad credit is not impossible. However, you need to put a little extra effort to make it work. In the meantime, make payments on time and in full. Paying on time is the best way to improve your credit score.
If you are seeking debt assistance, schedule a free credit counseling session with us today.