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Bad Credit Debt Consolidation

Posted by in Finance: Debt Consolidation  ~  May 17, 2013 08:19:43 PM

The idea behind a bad credit debt consolidation loan is to refinance the various debts that you have into one loan with lower interest rates.When your debt is mounting up and you have a bad credit Score you need to find a way to consolidate your loans before your finance gets out of hand.The fact that you have a bad credit score means financially you are considered bad risk to lending institutes.Regardless of how you got to where you are now, there’s a process you must follow to get back on the road to financial freedom.

First you need to make sure you credit report is up to scratch, you can get one free report from each of the three major agencies or pay a credit report company a few dollars usually between $10 -20$ to get a professional one. It’s the first thing you need to do before you approach anyone for a loan.The reason for that is quite obvious. Every financial decision that takes place in your life is affected in one way or another by your credit score. An error in you report can cost you from few hundreds and up to tens of thousands of dollars; just imagine having to pay an extra 0.25% on a home loan over 30 years due to an erroneous report.

Next you need to work out your cost of living and expenses and be realistic about how much you can repay your creditor. Then it’s time to decide what type of debt consolidation loan is most suited.Before approaching a debt consolidation company requesting a bad credit debt consolidation loan or even if you plan to do it yourself, decide what type of loan you are going to apply for, is it secured debt consolidation loan? Or is it unsecured loan. If you choose to apply for a secured loan you have a greater chance in obtaining a loan simply because tangible assets can be repossessed if your payment weren’t met.

Most people tend to use their equity in their own home and it makes sense to do so since home loan rates are usually lower then credit cards or personal loans, however before you rush in and use your home equity, be certain that your job is secured and you’re in good health.The last thing you want is to lose your home due to loss of employment or ill health that puts you out of work for a lengthy period of time. You should always explore other reliable options that will not put your most valuable asset at risk. For example using a balance transfer to a 0%apr credit card or using your car as collateral etc.

If you apply for an unsecured debt consolidation loan where no collateral is provided things will be completely different, the process will still be the same you still need to be realistic about your ability to repay your debt but you are now considered a high risk client. Meaning your interest rates are likely to be higher.Regardless of your credit score you need to talk to a debt consolidation company to get a workable solution to become debt free. As always there isn’t any magic solution that will make your debt disappear, but the benefits of getting a bad credit debt consolidation loan in general is a better option than multiple loans with separate high rates..

Here are some benefits for loan consolidation
  1. All your debt is merged into one account with one lower monthly payment.
  2. lower interest rate
  3. Reduce your debt faster
  4. Improve your credit score.
  5. Stop harassment form creditors asking for their funds.

As far as choosing the best debt consolidation company is concerned, it is very important you check out their track record and know exactly who you are dealing with. As a general guide line you should stick to the larger established firms with a long track record .These companies have invested plenty of time and money re branding themselves, and are unlikely to destroy their reputation for a few dollars, more over as a large established firm they have more leverage and are able to obtain better interest rates for your loan.