According to the laws that govern the lending policies of banks and other money lenders, you are legally eligible to apply for a consolidation loan even if you do not have the minimum credit required to be eligible for such loans. A debt consolidation loan which is also known as a special type of personal loan taken from a bank or any online lender can save you from the increasing pressure on you due to the higher interest rates charged by creditors.
No matter how strange it may sound to you, there are a few legal options available for consolidating debt with bad credit. It is the intent that matters along with several other factors. These options will however increase in desirability and number with better credit of course.
- The minimum credit score to consolidate your debt is ideally 640 though this may not be the case for any private money lender. However, if your credit has gone south of this desired figure, you can opt for a debt management plan offered by a non-profit credit counseling agency to consolidate your debt payments still and lower the rate of interest.
- Not only that, you may also qualify for different debt reliefs as well when you want to deal with your debt with bad credit. All you have to do is visit nationaldebtrelief.com and several other such sites that offer different relief options to the struggling debtors.
You will see that you can also avail debt relief such as student loan consolidation or home equity loan different lines of credit or other lenders.
Consolidating credit card debt
The law says that if you have poor credit or have missed any payment or simply have been an unlucky person to rack up a credit card balance at 29.99% APR, you have several options available in which you can lower your interest rates.
- The number of cards that you have does not matter in such situations for the credit reporting bureaus just like it does not matter how much balance you carry to them. It is found in a recent study by the National Foundation for Credit Counseling that in an average a person seeking a credit card debt consolidation has six cards and carries a debt of about $17,548 in all.
- As for the average rate of interest for credit cards it was found by Bankrate.com that in November 2017 it was about 16.75% but most of the consumers face rates that are approximately double than that, especially those consumers having sub-prime and deep sub-prime credit scores.
While consolidating your multiple credit card debts, the primary objective is to get the interest rates down in comparison to those charged by the original credit cards.
Considering your options
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There are several banks and a number of on-line lending sites that offer debt consolidation loans. As it is with any traditional loans, the terms of these loans largely depend on the credit history of the applicant and therefore the lenders will consider your credit score and report while granting such loans.
- For this reason you must also think about your credit score first like most of the consumers. Make sure that you check your credit score either by contacting one of the three credit rating agencies or by using the online tool available to the credit card companies and many banks.
- Abiding by the requirements of the law for offering a debt consolidation the lenders will also consider your debt-to-income ratio.
Therefore, when you have to decide the right type of consolidation loans to seek you will need to evaluate all other options so that you know about your eligibility and how well you can meet the requirements.
It is best to go ahead with the process after consulting with a reputed nonprofit credit counseling agency. This will prevent you from making your already bad credit even worse, though you can always do it on your own as per the law.
Sources to look for
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Once you know about your position and the source to obtain a debt consolidation loan you must now know the amount of loan you require to pay off your multiple credit card debts. This will allow you to not only repay your multiple debts easily but now you will have to focus on the new loan that will typically have a lower rate of interest and probably a more lenient payment term.
All you have to do now is consider the different sources to get a loan. If you had a credit score high enough you could have approached a bank directly but since it is low you will have to look for other sources. A few of these sources are as follows:
- Online lenders: Internet is the best friend for you to look for alternative sources where you can apply for such a loan online. There may be several individuals, groups and companies offering such loans. You will have to fill out an application form and depending on the information provided and verified, an interest rate will be offered for the loan. However, acceptance is not guaranteed and the rate of interest can be as high as 29%. Assuming that you like the terms and your application is approved, the online service will pair you with other private lenders to proceed.
- P2P lending: A short of ‘Peer-to-Peer lending,’ these are flexible and probably the best sources to go for people with bad credit looking for a debt consolidation loan. Once again your credit score will matter and the P2P lenders will choose whether or not they want to do business with you or take the risk.
- Friend or relative: You can even get a friend or relative to cosign for a debt consolidation loan if your low credit score disqualify you from getting a bank loan.
You may also opt for payday lenders as your last option who will charge extremely high interest rates. Therefore, this is not a good way to consolidate debts as it can worsen your financial condition.