Is Debt consolidation loan a good idea for a bad credit score?

Debt consolidation means combining your debts into a single payment. Although, debt consolidation is one of the best debt relief solution but it can also make your situation worse. You can easily go for debt consolidation if you have a good credit score. Even if you have a bad credit score, you can choose debt consolidation. However, in such case lenders usually charge higher interest rates and fees.

What credit score is needed for debt consolidation?

It’s good to have a credit score of 700 or more to get the best interest rates. The interest rate lies within the range of 5.99% to 35.99%.  The better your credit score, the lower interest rate you will be charged.


Are debt consolidation loans available for individuals with bad credit score?

It’s very difficult to get a debt consolidation loan with a low interest rate, if you have a bad credit score. The lenders who lend loans to people with bad credit scores are generally predatory, who charge a high interest rate.

Online companies charge interest rates as high as 400%. Payday loan consolidation interest rates also start at 400%. Say for example, if you take a loan of $100, you will have to pay at least $400 to the company. So there is no way that you can benefit from predatory loan.


debt consolidation loans

What are the reasons for a low credit score?

There are many reasons that lead to a low credit score. You may work on improving your credit score by analyzing the causes of low credit score.

Late payments

Late payments

Delay in making payments may lower your credit score. When you land in credit trouble, you start making low payments. Such a situation negatively affects your credit score.

Late fees

Late fees

Another issue that contributes to late payments is late fees. These are included in your credit balance and lead to an increase in your debt. Further, to make your situation worse, interest is added to late payments.

Missed payments

Missed payments

Missing your payments may cause you more credit problems. You might believe that you might catch up on your payments the next month. But when the next month arrives, two payments are delayed and you find no relief.

Debt consolidation loan options with bad credit

There are several options available for debt consolidation if you have a bad credit score.

  1. Higher interest rate

The first option is to accept a higher interest rate when you start with consolidation of your account. However, before agreeing to a higher interest rate, you should make sure you can get benefit from debt consolidation loans. Add up your account payments to check how much you are going to pay each month. If you find that the amount you pay after consolidating is same as the amount you are currently paying, it’s better to not go for consolidation.

2. Secured loans

You can also get an approval to use a secured personal loan. Such a loan is secured against your personal property, which is usually known as collateral. It’s possible to get a decent interest rate on secured loans by negotiating. The problem that most of the individuals face in getting a secured loan is that they do not have collateral to pledge as a security to the lenders. For example, if you want a secured loan worth $30000 for consolidating your debt, then you also need to have possession worth $30000 that can be kept as a security. However, this requires a proof of ownership that most borrowers fail to provide.

3. Loans

Your debt consolidation period shall last for a period of seven to 10 years. During this period the interest shall be accrued on the debt that you already owe.

Tips to get a debt consolidation loan if you have a bad credit score

The best option is to focus on improving your credit score. You should check your credit scores on Equifax, Transunion and, Experian. You can ask them for your credit report and accordingly take measures to improve your credit score.

This will give you a clear idea of the option so that you can look for several lenders who can lend you money. But you should take care of the interest rates, fees, repayment terms and hidden charges before making a decision.

Last alternative

You can also consider debt settlement instead of debt consolidation. Debt settlement involves negotiation with the creditors to lower the total amount of debt. Like consolidation debt, it also has a one-time payment convenience and a fast payment schedule. But unlike debt consolidations, settlement offers several benefits such as no credit check, reduction in your principal balance, and fast repayment of debt.

Our debt specialists can help you to find a structured path to get financial freedom and enjoy a care free life breaking free from the debt. We will help you get out of debt in the shortest possible time.

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