Debts are always stressful to manage. Different people have debts for different reasons - property, jewelry, education, and so on. Managing multiple debts during the same time period can make you feel overloaded. So, what can you do to beat this? Well! Debt consolidation is the answer. A debt consolidation is a plan adopted by a person to manage all his debts through a single window. This may also help you to lower your interest rates if you are paying high interest rates due to multiple debts. The obvious action that you can take to fulfill this plan is to get a debt consolidation loan. Although it may be hard if your creditworthiness is not in good shape, there are many measures that you can take to boost your chances of getting a debt consolidation loan with bad credit.
What is a Debt Consolidation Loan and What are its Advantages and Disadvantages?
A debt consolidation loan is a loan that combines all your debts into a single account. You can now pay multiple creditors through a single account. The benefits and downsides of a debt consolidation loan are as follows.
|Can aid you to pay off your debts without fail thus helping you in maintaining your credit score.||If taking a debt consolidation loan involves closing a lot of accounts, it could affect your credit score temporarily.|
|You will end up paying a lower interest and save money in the process. Also, it is advisable to go in for a debt consolidation loan only if you get a better interest rate||You may get one and one with a better interest rate only if your credit score is good|
|Your monthly payments are fixed unlike your credit card debts. Also a managing a single monthly payment is easier than paying off multiple creditors||There is a possibility that by consolidating all your payments into a single loan, you may leave out some unpaid loans or credit card payments, thus burdening yourself with more debt.|
Additional Read: How Does Debt Consolidation Affect Credit Score?
To Obtain a Debt Consolidation Loan with Bad Credit - Steps
Usually, you need to have a good credit score, a good credit report that reflects your consistent payment history, and a stable income that is sufficient to pay your EMIs to qualify for a debt consolidation loan. However, you can resort to the following steps to increase your chances of debt consolidation loan approval even if you have poor credit
1. Study Your Credit Score
Lenders reject or approve your loan applications based on your credit score only. There are many free tools to examine your credit score. Once you find out your credit score, you can shortlist lenders whose terms you can meet. There are lenders who specialize in offering loans to people with lower credit scores. Many lenders put up the credit score requisites on their websites, and you can contact them accordingly. Also, once you are aware of your credit score and have seen your credit report, you can discover what is hurting your credit score. You can find ways to improve your credit.
2. Compare Lenders and Explore
Once you understand where you stand with respect to your creditworthiness, you can compare lenders. Contrast processing charges, repayment tenures, interest rates, monthly EMIs, and loan terms from different lenders, so that you can end up with the one that is most viable to you.Getting quotes from various lenders - private banks, national banks, NBFCs, and online lenders. can help you comprehend the available options. Also, you can run a prequalification test for the loan to understand your probability for procuring the actual loan. You can start with online lenders, since they will conduct only a soft inquiry, which will not impact your credit score. Do not fail to check out on loan offers from your present bank. It is not wise to apply for a debt consolidation loan with the first lender that you come across. Always shop around and inspect.
3. Get a Co-signer for the Loan
You can ask a friend or relative with a good credit score to add their name to your loan application taking responsibility for the loan amount in case you default. This is called co-signing, and it will help you qualify for a debt consolidation loan that you will not be able to procure individually. Even if you are eligible on your own, a cosigner with a good credit score can help you obtain better interest rates
4. Improve Your Credit and Then Go for The Loan
If you have the time and patience, you can improve your credit score and then apply for the debt consolidation loan. Repay your EMIs and credit card debts on time. Set reminders for payments, so that you do not miss the due dates. Cut out unnecessary expenses. Always plan your finances in such a way that you save enough to pay your EMIs for the month. Restricting your credit card usage according to your credit card limit will improve your credit score while touching the limit lowers the credit score. You can thus check with your lender and tailor your credit card limit to suit your needs.
Obtaining a debt consolidation loan with bad credit is tough, but it is possible through diligence, patience, research, and using some smart strategies. Bringing the multiple payments that you have to make - say to more than one credit card lender, personal loan funders, private lenders, etc. under one single account is manageable, less stressful, and more beneficial. But you have to plan it in a proper way.
FAQS to Get a Debt Consolidation Loan With Bad Credit
1. Is it difficult to obtain a debt consolidation loan? Why?
Yes, it is hard to procure a debt consolidation loan. You should have a good credit history and sufficient income to pay your EMIs on time. If you have too much debt on your cards, you may not even be in a position to combine all the loans in one single bucket.
2. Does Debt Consolidation affect your credit score?
Debt consolidation can improve or lower your credit score according to how consistent you are with your repayments and which method you use to consolidate your loan. Thus, it will affect your credit score.
3. What are the other alternatives to a debt consolidation loan?
- You can reach out to your current lenders and request them to change the repayment terms to be more flexible.
- You can consult a credit counselor who will offer free services and give you the best tips on how to get out of debt faster.
- You can get a balance transfer done to obtain better interest rates, interest-free EMIs, and conducive repayment periods.
- You can get a home equity loan.
4. Are there any specific eligibility criteria to get a debt consolidation loan?
No. There is no separate eligibility criterion to get a debt consolidation loan. It depends on the decision of the lender.