Bad Credit and Debt Consolidation

Nothing’s easy if you’ve got bad credit.  It doesn’t matter how you got to that point, whether it was credit cards, medical bills or delinquent student loans; if you’ve got a low FICO score, you’re going to be denied loans, or gouged on interest rates for things like car loans or “second chance” credit card offers.  

What’s more, a bad credit report can even ding you when it’s time to find an apartment to rent.  Some employers even look at credit scores when evaluating a job applicant.  Is it fair?  Maybe not, but that’s the way the system works.

Bad Credit Debt Consolidation Loan Options

First off, bear in mind that if you’re considering a bad credit debt consolidation loan, there’s a good chance that you won’t get it.  If you’re already in trouble on credit cards or other debt and you have collection agencies involved, your credit scores are not going to be good and many lenders will consider you a poor risk.  

You might wind up with a bad credit debt consolidation loan that carries a punitive interest rate that’s not much better than your credit cards.

Or, you might wind up with a debt consolidation loan against the equity in your house. Lenders like to have the security of real property to back up a loan in situations like this.  It’s really just a home-equity loan that goes by another name, and it of course carries the risk of foreclosure should you go into default.

Debt Management Plans for Those with Bad Credit

For those with bad credit, debt consolidation can also come in the form of a debt management plan where the credit counseling service takes your monthly payment and splits it among your creditors.  This is where it’s important to do your homework, though; there are plenty of services out there who aren’t entirely above-board, and are out to prey on people with bad credit and bad circumstances.  

Read all the fine print, get references and testimonials, check with the BBB and ask how much of the monthly take is skimmed off for fees and charges.

With recent changes in laws, bad credit debt consolidation won’t ding your credit scores.  It will, however, show up on your credit history.  Some creditors or lenders look at that as a sincere effort on your part to bring your debts current, and will act accordingly.  Other creditors will look at it as a sign of irresponsible spending and living beyond your means, and may deny you credit or loans or may charge higher interest rates as a result.

If things have gotten to this point, it’s important to exhaust all options before turning to a bad credit debt consolidation loan or a debt management plan.  Talk to your credit card companies directly and see if you can negotiate your balances, fees and interest rates down.  

Set up a payment plan with collectors, if they’re involved.  Most importantly, communicate with them and keep them apprised of your circumstances and what to expect. Chances are they will probably want to work with you after all.