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How To Approach Debt Consolidation Loans with Bad Credit

Dealing with debt can be challenging, and debt consolidation is often seen as a helpful solution for consumers in such situations. However, if you have bad credit, you may face difficulties when seeking debt consolidation loans. Typically, good credit is necessary to secure loan approval and obtain favorable interest rates. If you’re navigating debt consolidation loans with bad credit, ACCC is here to provide guidance.

Learn about debt consolidation loans with bad credit.

Learn about debt consolidation loans with bad credit.

What Constitutes “Bad Credit”?

Credit scores, measured by FICO, range from 300 to 850. A score of 700 is generally considered good, while 750 or higher is very good, and 800 or higher is excellent. So, what qualifies as a “bad” score? In general, a score below 670 is considered unfavorable, and anything below 600 is classified as bad.

If your credit score is on the lower side, don’t panic yet. It may take a few months, but there are ways to improve a bad credit score. The most crucial step is consistently paying bills on time, including credit card bills, car payments, and mortgage. Payment history carries the most weight in determining your credit score. The next significant factor is your credit utilization rate, so it’s advisable to keep your credit usage below 30% of your available credit.

Should You Pursue Debt Consolidation with Bad Credit?

If you find yourself overwhelmed by credit card or other unsecured debts, debt consolidation can be an appealing option. But what if you have a bad credit score? Should you still apply for a debt consolidation loan? Consider this: the purpose of a debt consolidation loan for many consumers is to merge multiple debts into a single monthly payment and secure a lower interest rate.

However, if you have bad credit, it’s unlikely that you’ll qualify for a low interest rate, assuming you get approved for the loan at all. This defeats the purpose of a debt consolidation loan. Additionally, it’s important to note that each loan or credit application, including those for debt consolidation, results in a hard inquiry on your credit report. Excessive hard inquiries can negatively impact your credit score. With all of this considered, applying for debt consolidation loans with bad credit may not be the best way to handle debt.

What Are the Alternatives?

There are other ways to pay off debt that don’t involve taking out a loan. A debt management program with a nonprofit credit counseling agency – like ACCC – for example, consolidates your debts into a single monthly payment. Again, it’s important to note that this is not a loan. Through negotiations with creditors, we at ACCC work to secure lower interest rates and may even negotiate reduced or waived fees. Additionally, participating in a debt management program does not require a specific credit score.

Final Thoughts

Pursuing debt consolidation loans with bad credit isn’t the ideal choice, but you still have other options for debt relief. Debt management programs offer similar benefits without the need for a loan. Initiating contact with a credit counseling agency is an excellent starting point for those uncertain about the best course of action for their situation.

If you struggle to pay off debt, ACCC can help. Sign up for a free credit counseling session with us today! 

 

 

ABOUT AUTHOR / Rae Yen

Rae Yen is a marketing coordinator at ACCC. She wants to help others optimize their financial resources and plan accordingly.

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