How to Consolidate Debt with Poor Credit

Any time you are struggling to meet the payments on your debt obligations as well as your day-to-day living expenses, debt consolidation should be a consideration. Numerically, however, experts say when you owe more than 30% of your total credit limit, you are in a position where your debts can harm your credit rating. In order to avoid a life of debt, and the possibility of not being able to qualify for a mortgage or get a car loan, it’s time to do something to get yourself out of the financial quagmire.

Bad Credit Debt Consolidation

There are many ways you can work to consolidate your debts. For instance, if you have several credit cards, you can attempt, via balance transfers, to get all the money on one card, in one place, with one payment. While the balance transfer may be free as a promotional offering, such transfers usually have an expiration period. If you try this method, you not only want to avoid transfer fees, but you want to “park” your money on a new card with a high limit, a low interest rate, and a long term. If you can’t negotiate that combination of variables, you could easily wind up increasing rather than decreasing your debt!

You can also take out a loan for the total amount of your debt, use the funds to pay off your multiple creditors, and then work on the single balance. The situation, however, is similar to that of the credit card consolidation scenario. You want to make sure that you are arranging a deal with no hidden fees, a low interest rate, and a long-term of payment. And you need to understand that the interest you are paying, over the increased length of the debt does mean you will pay more in the end. The idea, however, is to get a manageable payment at one interest rate in order to take control of your living expenses.

Given the complexity of all these factors, and how they affect one another, you may well need professional help in making the right choice.

Bad Credit Debt Consolidation Loans

If your credit rating is already wandering into the questionable range, you may find it hard to even get a bank or similar lending institution to consider taking the risk of loaning you money at all. Traditionally, loans are granted to applicants with good credit ratings, a score derived from looking at your past credit history combined with your income. Proposed interest rates are tied directly to your current level of debt. In other words, the more you owe, the more you pay. That alone puts many consumers on what seem like a never-ending spiral.

Normally, debt consolidation loans are either secured or unsecured. An unsecured loan is based purely on your existing financial reputation and is likely not an option in your case. A secured loan is backed by collateral, such as a house or other tangible property, but there are risks. If you leverage your home and default on your loan payments, you could lose your primary residence.

While it may be comforting to simply know that a debt consolidation loan is an option even with bad credit, it’s not a process to enter into uninformed or without professional assistance. While even that idea may seem frightening, your goal is to arrive at a debt free place where you can live within your means. If you take advantage of the available credit counseling services and seek responsible loan consolidation help, financial freedom is within your reach — and even if you are scared of taking the first step, isn’t that better than being scared every time you see a bill in your mail box?