If you have bad credit and are in over your head in debt, you may be considering a bad credit consolidation loan. For most people with bad credit that are behind on their payments, this method of ‘catching up’ seems to be the most reasonable. There are, however, a few things you should know before jumping into a bad credit consolidation loan.
The Dangers of Scams
Because you have bad credit, many scammers assume that you also have bad judgment. Don’t prove them right! Protect yourself from scams by being able to recognize them. Know the common practices of legitimate credit lenders as well as illegitimate lenders. Don’t accept any company, especially companies online, at face value.
Know Your Lending Options
Whether you have good credit or bad credit, there are pros and cons to different lending options. Some options are not a wise credit choice – as you now know. Other options will help you get a handle on your credit payments and your bills.
You should also know that, because you have bad credit, your lending options are more limited. The amount of limitations you face is contingent on the severity of your credit problems. You may find that the only options you have available to you are things like payday advances, which have extremely high interest rates, or secured loans, which put you at risk of losing something of value – like your home – if you fail to make your payments.
Take the time to contemplate the pros and cons of each of your lending options. Understand what you have to lose besides a step towards good credit, should you default on your loan. Things like payday loans can come back on you as a bad check, which could be considered fraud. Cash advances are also very high in interest and you can quickly get in over your head if you’re not careful.
In a secured loan, if you place your home up for collateral, you could lose your home if you fail to make your payments on time. This could put you at an even bigger risk than you are in now. If a secured loan is your only option, see if there are other ways to handle your current debt.
Search for Non-Lending Options
If you are really ready to get your credit back on track and can’t seem to find an option that seems reasonable or satisfactory, consider talking to a family member about helping you secure a lower interest rate and approval on a loan. If the size of your financial need is small, consider holding a yard sale or selling something in your home of value. Find ways around your debt problems without risking your credit.
Contacting Your Creditors
If you are behind on your payments and have been for quite some time, you might be able to find creditors that are willing to accept a smaller amount if you agree to pay the entire debt at once. This can hurt your credit score some in the short term but as long as you handle credit effectively in the future, it will eventually turn into something good because you did pay the debt – even if it wasn’t the full amount and you did pay it off, even if it wasn’t on time. This is still better than letting it just sit on your credit report for the next seven to ten years.
If you have a lot of debt and just don’t know how to approach it, then you could consider debt settlement. In this debt management option, the debt settlement company contacts your lenders and tries to convince them to take a smaller amount of money as payment in full. While this may seem like a great option, there are a lot of risks involved.
Some debt settlement companies are less than honest. Others have taken money from people, just like you, leaving them in a worse state than when they started. Others fail to make the designated payments to your creditors on time. This only further damages your credit score. Be very careful when considering debt settlement.
An actual debt consolidation loan, which may be difficult to come by with bad credit unless you have collateral, is where you secure a new lender for your debts. They purchase all of your debts and loans, roll them all into one loan and then offer you a new loan term. This may cost you more money. In rare cases, it can save you money. Either way, your old debts will all be paid. For this reason, a debt consolidation loan can help you get your credit back on track – if you manage it correctly.
Becoming Debt Free
No matter which option you chose for managing your debt and getting your credit back on track, you can be sure that it will take a great deal of time. You didn’t get into credit trouble overnight and you won’t get out that quickly either. Make your payments a priority. Take care of them promptly and learn how to handle your newfound credit when you do start to see improvements.