Guide to Getting a Debt Consolidation Loan with Poor Credit

Debt Consolidation Loan with Poor Credit

With an average household debt of over $133,000, it is no surprise that a lot of Americans are not getting too much sleep at night worrying about how to stay out of trouble. Since most of the debt arises from the reckless use of credit cards, and it is always very difficult to repay the entire balance considering the very high rates of interest applied, it keeps on piling up to such an extent that people start considering filing for bankruptcy. However, it is possible to get on top of debt provided you adopt the right strategy and implement it with the required determination.

A consolidation loan is one of the most practical ways of ensuring that there is no more need to track multiple credit cards with different due dates to ensure that they are paid on time. With such a loan, you can just settle all your card balances and relax in the knowledge that now you need to pay only a single payment every month, and not have to worry about missed payments and late fee charges. There are quite a few private lenders, as well as banks and credit unions that are ready to extend consolidation loans; however, the rate of interest that you will be charged will depend on your credit score. Read on to learn more about consolidation of debt and how it is possible to obtain a loan even when you have poor credit.

What Is a Consolidation Loan?

A consolidation loan is essentially a personal loan taken for the express purpose of paying off all the accumulated balances of your credit cards. After your cards are paid off, you are left with only one loan account to monitor and a single payment every month till it is extinguished.

What Are the Benefits of Taking the Loan?

The most tangible benefit of a debt consolidation loan is that it enables better money management so that you can wind down your debt and start rebuilding your financial future. Typically, the interest rate on the consolidation loan will be far lower than the steep rates charged by credit cards so you can save substantially on the interest expense. By taking the loan, you are also free from the responsibility of monitoring multiple creditors and ensuring that they get paid on time every month because you are left with only one debt and a single payment to be made each month. A consolidation loan is also a very good opportunity for you to restructure your debt and make your monthly payment affordable by extending the loan tenor.

What to Do Before Applying For a Consolidation Loan?

The first thing that you should do is to know exactly how much your credit card balances are and the rate of interest attached to each. Having this information will be handy in knowing the amount of the loan required, and an idea of the rate of interest that will make it worthwhile for you to take on the loan. You should also obtain copies of your credit report from all the three agencies to verify that they are correct and up-to-date because errors in the credit report can make it more difficult to get the loan at an attractive rate of interest. You should also calculate your total income and your living expenses so that you know how much disposable surplus is there that can be applied to the loan repayment.

What Is the Ideal Credit Profile for Getting a Loan at a Low Rate of Interest?

The higher your credit score, the better the rate of interest you will get from a lender. If you have a score of 700 or more, you will get the lowest rates because you will be considered as a low-risk applicant. On the other hand, with a score of 450 or below, you will be hard pressed to find a lender to give you a reasonable interest rate.

Conclusion

It is vital that you seek loans only from reputable companies to avoid being scammed; however, it is likely that some of the best ones may reject you if the score does not meet their eligibility criteria. The best way of getting the loan is to shop around, especially with the companies that specialize in lending to people with poor credit. Many of the online lenders can give you a really good deal, however, be sure to read and understand all the contractual fine print.

Author bio: Sarah Gray is a personal finance counselor working with a leading debt consolidation agency. Sarah writes articles on emerging trends in personal finance and money management.

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