For many people, bad credit is cyclical. Maybe you have a credit card that you’re unable to pay down, so you take out another credit card. Or perhaps you’ve gotten behind on your auto loan, so it becomes necessary to apply for a personal loan. In any case, your debt grows because of your honest desire to pay your bills!
If you find yourself in this situation, you may be thinking of applying for a debt consolidation loan. So what are the best debt consolidation loans for bad credit? Are consolidation loans a good idea in the first place?
What is a Debt Consolidation Loan?
For every person who owes money, there’s a reason that debt exists. It could be that you had a medical emergency, which caused you to miss work. That, in conjunction with medical expenses, can create more debt than you can possibly handle.
The reason could be actually be much simpler. Maybe you’ve got an auto loan, a few credit cards and a personal loan. Together, the amount you owe monthly is just too much for you. Wouldn’t it be nice if you could lump each of those accounts together into one monthly payment?
That’s what debt consolidation loans are for. Debt consolidation loans are personal loans that are granted with the understanding that you’ll use the loan to pay off your outstanding debts. The debt consolidation loan lumps each of your debts together, creating a single monthly payment at a fixed interest rate.
Debt consolidation loans are an easy, manageable way to pay off your existing debts. Of course, as with any debt, there are pros and cons to debt consolidation loans.
Debt Consolidation Loans: Pros and Cons
Debt consolidation loans can be very useful tools to get your credit back on track, or to keep your accounts in good standing. This is particularly true if you have good credit. People who have good credit use debt consolidation loans to lower their total monthly debt payments, and can usually do so at a fair interest rate.
Debt consolidation loans for bad credit, however, may come at a cost: high interest rates. If your credit needs work, you could be looking at interest rates as high as 30% in the most extreme cases! That’s not always the case, though. There are lenders that are willing to extend debt consolidation loans for bad credit at much lower rates.
Another “pro” to debt consolidation loans is that they can improve your credit. This effect is actually two-fold. First, a debt consolidation loan can keep your accounts from going to collections. Charge-offs and settlements can quickly lower your credit score. Secondly, your ability to make these lower payments on time will prove to credit issuers that you’re credit worthy.
One final consideration you should make is neither a pro nor a con. That consideration is this: with careful planning, you could develop your own debt consolidation plan. That said, sometimes self-help for debt consolidation leads to additional debts. Again, debt can be quite a cyclical process.
Debt Consolidation Loans for Bad Credit
If you have poor credit already, you may find it difficult to get a debt consolidation loan. Some lenders are hesitant to help you because they don’t believe you’ll pay down your debt consolidation loan. If your credit is less than perfect, this puts you in a difficult situation. You know you want to pay down your debt. That’s why you want a debt consolidation loan!
Fortunately, there are lenders who will offer debt consolidation loans for bad credit. You just need to know where to look.
The first place you should check is with your credit union. Credit unions have an excellent reputation for working with members of the local community. In an attempt to sustain that reputation, they’ll often extend credit to those members who may have fallen behind on a few payments.
The second place you should look for a debt consolidation loan is with, surprisingly, your credit issuer. For example, if you have three Capital One credit cards which are all maxed out, the issuer may be willing to work with you to pay that debt down.
Finally, for specific types of debt, you may have alternative options. Refinancing your home or your vehicle can lower your monthly payment. Similarly, student loans may often be consolidated through the issuer or through government programs.
Best Debt Consolidation Loans for Bad Credit
Only you can determine the best debt consolidation loan for your specific situation. The loan you choose may depend on the debt you owe, or even on the amount owed. The options below are listed based on the terms at the time of writing. Always be sure to familiarize yourself with the terms of the debt consolidation loan before you sign.
National Debt Relief
National Debt Relief offers services to consumers with all credit ratings. Your desired loan amount must be $7,500 or more, and the company offers a free debt consolidation consultation.
National Debt Relief has excellent reviews with the Better Business Bureau. In fact, at time of writing the company’s rating was A+. The company advertises savings of 50% of payments each month, or 30% when you consider the fees to National Debt Relief.
Most debt consolidation loans for bad credit will “lump” your debts together, offering you an installment loan at a fixed interest rate. CuraDebt works just a little differently. There are two structures to the loans at CuraDebt: fixed fee and commission based.
CuraDebt, like National Debt Relief, offers a free consultation. Customers must have $10,000 or more of debt, so if you just have a few credit cards this might not be your best option. Note that CuraDebt is only available in certain states, so be sure you check whether your residence is eligible.
CareOne Debt Relief Services is a great option if your debts are smaller. They’ll work with consumers with debts as low as $2,500. And the fee structure is different from other lenders. There is an initial setup cost, but monthly costs are based on the debt owed. What’s more is the company promises the monthly payment will never exceed $50.
People interested in CareOne Debt Relief Services are eligible for a free consultation. Speak with the representatives at CareOne to find out if your debt qualifies for consolidation.
Debt Consolidation Marketplaces
If you prefer to shop around for debt consolidation loans for bad credit, consider trying one of the many debt consolidation marketplaces. There are quite a few reputable websites, including LendingTree, LendingClub and ELoan.
These three marketplaces are known to be reputable. If you choose another marketplace, be sure to vet the site before entering any personal information. When used safely, debt consolidations are an excellent way to find the best debt consolidation loans for your situation.