Types of consolidation loansFor someone with a bad credit score to get a debt consolidation loan, they will be required to have a cosigner with good credit or alternatively, build their credit score. Accessing a loan with bad credit will require that you shop around for suitable options such as online lenders and credit unions. There are lenders that work specifically with people with poor credit scores. They mostly focus on factors such as job history, income, and education.

How Do I Get A Debt Consolidation Loan With Poor Credit? 

Check your credit report:

Errors such as inaccurate credit limits incorrectly reported missed payments, and wrong accounts could be the reason your credit score is suffering. Credit bureaus will offer a free credit report once a year and you should take advantage of that to check your credit score. Even a seemingly insignificant change can improve your score from bad to fair. 

Improve your debt-to-income ratio:

If you are in a position to hold off consolidating your loans, you should look into means of improving your debt-to-income ratio. This is achieved by paying off small debts and increasing your income. This is used by lenders to evaluate your loan repayment abilities.

Add a co-signer:

A co-signer is someone that takes partial responsibility for paying off your loan if you are unable to. Getting a co-signer with a good credit score will qualify you for loans with lower interest rates. On top of taking responsibility for your loan, the co-signers risk their credit score being hurt if the loan is unpaid.

Shop around:

To get a loan that suits your budget, you should shop around and compare terms and interest rates from different lenders. With most online lenders, you can pre-qualify by getting a soft credit check. A soft credit check does not hurt your credit score. Look for friendly features such as direct payment to creditors which means that the money is sent directly to your creditors, eliminating the temptation to use the money for other needs.

Where Do I Get A Debt Consolidation Loan For Bad Credit?

Credit unions

secured personal loansThese are non-profit organizations that offer lower rates and more flexible terms than online lenders. Credit unions have an annual percentage rate of 18% on personal loans which in essence is much lower than most online lenders offer. For you to apply for a loan with a credit union, you will need a hard credit check which negatively impacts your credit score albeit temporarily.

You will also have to be a member of the credit union to qualify for a loan with them. This means paying membership fees, working, or living nearby. Credit unions such as First Tech Federal Credit Union and Navy Federal Credit Union give debt consolidation loans with no minimum credit score requirements, no origination fees, and low rates. They also offer direct payments to creditors.

Online lenders

These entities provide funding very fast. The application process and funding is done and completed within days. The disadvantage with online lenders is that their rates can be quite high in comparison to credit unions. Online loans for bad credit have an estimated APR range of 16-36%

Online lenders also charge origination fees which are costs that cover the processing of the loan. These fees are deducted from the amount loaned. This means that you might be required to request a slightly larger loan to cover these costs and still have the amount you needed in the first place.

How do You Manage Your Debt Consolidation Loan?

  • Make a budget: Making a budget will help you keep track of your repayments, spend less, and have more control of your financial situation. Debt repayment allows you to set money aside for debt, savings, wants, and needs.
  • Stop using credit cards: Ensure to avoid incurring new debts on the already paid credit cards, but keep the credit card accounts open.
  • Keep in touch with the lender: If you are unable to keep up with the payments, contact your lender immediately. Some lenders may offer temporary suspension on payments or offer hardship programs until you can resume payments.

What Are the Alternatives To Debt Consolidation?

Types of emergency loansIf you feel that debt consolidation loans won’t work for you, you can consider these alternatives.

Debt snowball method

This involved arranging your debts from the smallest to the largest. You will then start paying off the smaller debts and once they are paid, you can put the monthly payment towards the next small balance until they are all paid off. This process goes on until you are debt-free.

Debt management plan

A debt management plan will help you pay off your debt faster and reduce interest rates. If you can stick to a payment plan for years without using credit cards, it is the best option for you.

Call Us Today

If you need advice on the best ways to get out of debt, you should consult Encompass Recovery for expert advice on the best way to go about it. We offer you alternatives to your debt payment that will quickly get you out of debt.

References and Resources

Emergency loans

Credit scoring systems- Science direct