Debt Consolidation Loans for Bad Credit

Debt consolidation loans are an excellent financial tool that can help you pay off your debts, decrease your total monthly payments, and accelerate your journey to financial freedom.??

That said, if you have taken on debt with multiple lenders, accumulated high loan amounts, and are behind on payments, your credit may not be in the best shape. The good news is that plenty of lenders offer debt consolidation loans for bad credit.??

If you have been searching for a way to alleviate your financial challenges, you may want to dive deeper into how to qualify for a debt consolidation loan with bad credit. There are pros and cons of debt consolidation, and there are some alternatives you may want to explore as well.??

What is debt consolidation?

Debt consolidation is the process of combining multiple loans into a single debt and monthly payment. There are two goals behind debt consolidation — to reduce your cumulative monthly payments and reduce the interest rate on your debt. Ideally, you want to save at least a couple hundred dollars per month and have a loan term between 36-60 months (3-5 years).??

By reducing your monthly payments and decreasing your repayment term, you can save thousands in interest charges. Additionally, a debt consolidation loan can give you the financial flexibility needed to save money, build an emergency fund, and pay off other debts, such as your car loan.??

Traditionally, you consolidate debt by borrowing a large lump sum and paying off several of your other obligations. For instance, say you have three credit cards, each with an interest rate above 15%. Cumulatively, your cards have a balance of $10,000.?

In this scenario, you could take out a $10,000 debt consolidation loan (with a lower interest rate and set repayment term) and pay off all three cards. Instead of making three separate payments at a high-interest rate, you could pay one lender and save money.?

Benefits of debt consolidation

By consolidating your debt, you can:

1. Wipe out credit card debt

Technically speaking, you are just moving debt from your credit card to a personal loan. However, your credit report will still reflect that your credit card utilization rate has dropped once you consolidate your debt. As a result, your credit score might get a boost.?

Additionally, reducing your interest rate?and combining your debt into one loan will help you pay off your bills faster. You can put extra money toward your loan, make principal-only payments, and save thousands in interest. ?

2. Lower your interest rate

Speaking of interest, one of the biggest perks to debt consolidation is that personal loans often have much lower interest rates than credit cards. That said, if you are getting a debt consolidation loan with bad credit, your rate may not be as good as you would like, especially if you are taking out an unsecured loan. An unsecured loan is any loan that is not backed by real property, such as a vehicle or home.?

Now for the good news. If you take out a secured loan and use a paid-for vehicle or the equity in your home as collateral, you may be able to get a much better interest rate. Before settling on a particular loan type, make sure to compare your options to determine which approach makes the most financial sense for you.??

3. Consolidate your payments

Keeping up with multiple credit card or loan payments can be tedious. Consolidating your debt can simplify your budgeting process and help you maintain better control of your finances. When you have fewer recurring bills, it is easier to manage your money and set financial goals.??

To maximize the benefits of your debt consolidation loan, ensure you have enough cash to completely pay off several bills. Partially paying down a few bills won’t provide much benefit and can actually make your financial situation more complicated.??

4. Save money

The key benefit of taking out a consolidation loan with bad credit is that doing so helps you save money. Depending on what bills you pay off and how low your interest rate is, you may save several hundred dollars per month. Additionally, you will save thousands in interest over the life of your loan.??

While spending your extra cash may be tempting, make sure you allocate at least some of it to an emergency fund. Building a healthy emergency fund that can cover three to six months of your basic life expenses will help you stay out of debt once you pay off your loan.?

To read the full article: https://crosscountrymortgage.com/mortgage/resources/debt-consolidation-loans-bad-credit/