If you owe more than 30 percent of your total credit limit, you can consider yourself in the kind of debt that can adversely affect your credit rating. If you have poor credit to begin with, you should definitely consider consolidating your debts as a way out of the financial quagmire. Even with poor credit, there is hope for you to have a debt-free future through bad credit debt consolidation.
Bad Credit Debt Consolidation
Debt consolidation can be handled a few different ways. The first way is specifically for credit card debt. If you’re indebted to several credit card companies, try combining your debts onto one credit card through balance transfers. Most credit card companies, in an effort to gain your business, will give free balance transfers. However, be sure the new credit card has a high limit and low interest rate, or else you may be paying more than you were to begin with. This may be a difficult task, as lower interest rates are usually only granted to those who have good credit. But, it’s worth looking into as an option for poor credit debt consolidation.
The next method is through a bad credit debt consolidation loan. Debt consolidation loans for poor credit involve taking out one large loan to pay off all of your other smaller debts, which could be credit cards or other. And, like credit card consolidation, the lower the loan’s interest rate, the better. Be sure to discuss what interest rate you can get with your lender before making any final decisions. You may need to seek the help of a professional to make sure you’re making the right choice. Getting a large loan with a higher interest rate than what you’re already paying will actually increase your debt instead of alleviate it.
Bad Credit Debt Consolidation Loans
Debt consolidation loans for bad credit may seem like impossibilities since banks and other lenders take a risk every time they loan out money. Traditionally, loans are given out to those with good credit ratings. Your credit rating is based on your past credit history, and, combined with your income, is what lenders look at to determine what interest rate to give you on big purchases, like houses or cars. In other words, the more you owe, the more you pay, which can lead you down a never-ending trail of debt.
When applying for a poor credit debt consolidation loan, you can receive one of two types: secured or unsecured. A secured loan is backed by collateral, such as a house, whereas an unsecured loan is not backed by something of value but based on your financial reputation, or your credit score. If you have poor credit, you may have trouble getting an unsecured loan. If you own a home, or something of similar value, your best bet is to get a secured loan. However, be cautious. Leveraging your home means possibly losing it if you default on your payments.
It’s comforting to know that you can consolidate your debt even with bad credit. But consolidating your debts is only the first step to living debt-free. Living within your means is a way of life that must be learned, sometimes the hard way. There are countless credit counseling services and resources out there, many of them free. Take advantage of these and know that financial freedom is within your reach!