I have bad credit, can I still get a debt consolidation loan?
If you have bad credit and a large amount of debt, you are probably wondering what options are available for you in order to eliminate that debt. Perhaps you are having difficulty affording your monthly payments or you want to reduce your debt so that you can sink more money into repairing your credit.
With unsecured debts such as credit cards and personal loans there is a great incentive to consolidate as you are usually paying an additional 5% to 10% in interest above the standard secured loan rates.
However, an individual with bad credit may have difficulty qualifying for an unsecured debt consolidation loan. Of course it is up to each lender however the most likely answer is going to be "no."
But there is an upside to this. If you own a home and you have some equity built up in that home, you may be able to qualify for a mortgage refinance loan. With this type of loan you are refinancing for the value of your home minus what you have left in the mortgage. This money is used to pay back the old mortgage and your high interest unsecured debts. You end up coming out in front because your are swapping a low interest secured loan (a mortgage) for your high interest unsecured loans (credit cards + personal loans).
Once you pay off all of your debt with the money you received from the equity in your home, you will then have one single payment instead of multiple payments that originally paid your debts each month and you will only have one creditor. However, it is important to not start using the 'savings' made on additional credit cards or you will find yourself in a worse position than before. That is, if your spending habits do not change and you start loading up on credit cards or personal loans, then you are simply eroding the wealth that you have built up in your home.
If you are struggling with your repayments and think that you might be in danger of missing a payment in the near future, it is a better move to consolidate before you miss a payment. This way you can preserve your credit rating and keep your interest costs low. It is a good idea to not wait until you start missing payments as otherwise it is unlikely that you will be able to qualify for an unsecured debt consolidation loan, or if you go down the mortgage refinance route, your likely rate will be much higher.
If you do not own a home or do not quality for a refinancing loan and you are being weighed down with debt, you could consider contacting a debt administrator about setting up a debt agreement for you.
A debt agreement is an agreement with your creditors that the debt management company mediates for you. They will work to have your payments lowered to an affordable level and your interest charges frozen. Â They will put together a proposal concerning your debts and the repayments to your creditors to your creditors. If they vote for the proposal your creditors also cannot take additional action against you. However, if you default on the agreement, you could be made bankrupt. Debt agreements are an alternative to filing for bankruptcy, which can have far worse repercussions. Bankruptcy can literally ruin your life by taking away your freedoms.
Just make sure, before entering into a debt agreement, that you understand that you will find your name on the National Personal Insolvency Index for the rest of your life. Even if the proposal is accepted, it remains there. The debt agreement will also stay on your credit report for 7 years, which has an impact on your credit rating and how creditors look at your creditworthiness.
So if you see trouble or are experiencing trouble in paying your debts, explore these options to get you out of debt.
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