Personal Loans for Bad Credit: Think Again!
Are you behind in payments? Do you need cash to pay a bill? Do you have pressing medical bills to pay? Has your Credit Score taken a hit?
If you are late in payments or defaulting on bills, then it is tempting to look for easy situations. A personal loan for people with bad credit is one possible solution. Unfortunately, unless you win the lottery, there are no easy roads to debt relief. The good news is that there are debt relief solutions that will help you.
A good game plan includes keeping a budget and maintaining an emergency savings/rainy-day fund that will carry you through at least a six-month period of financial strain. However, even your best-laid plans can go astray. Problems are more likely to happen if you do not properly prepare your finances. As you get deeper into debt, and your credit score drops, it is harder to qualify for a loan.
This article will help you will learn about:
- Bad credit: What is it?
- Personal loans for bad credit: Is it a solution for debt problems?
- Are there alternatives to personal loans for bad credit borrowers?
Bad Credit - What is it?
One definition of bad credit is a low credit score. In order to understand exactly what "Bad Credit" is, you must first understand what determines your credit score. The most common credit score is the FICO score, which runs from 300 to 850. The five main parts of your FICO score, and their relative importance, are:
- Payment History (35%)
- Amounts Owed and Utilization (30%)
- Length of Credit (15%)
- Type of Credit Mix (10%)
- New Credit (10%)
For more information read the Bills.com page, FICO Score Calculation, which explains those five key factors in your credit score, and gives you tips on how to maintain a good score. It can't be repeated enough; the most important thing you can do is budget wisely and pay on time.
Personal loans for bad credit - Is it a solution for debt problems?
People with bad credit are often desperate to find sources of money to pay off pressing bills. They become easy prey for lenders offering high interest rate loans, with high fees. When searching for personal loans for bad credit, you will run across many companies you've never heard about offering you "fast money." The personal loan is usually for a short period of time and for a relatively small amount of money. The advertisements and Web sites scream about low interest rates or large sums of money that are easily available. This is done to grab your attention. However, if you read the fine print, you discover that those offers are reserved for people with excellent credit and strong income.
Personal loans are unsecured loans. This means the lender is relying on your ability and willingness to pay back the loan. There is no asset used as collateral, as in a mortgage loan or an auto loan. Big banks do offer these types of loans, and people do take them to consolidate debt, or pay for big-ticket items. However, these loans are not available for people with bad credit.
Therefore, the short answer is, NO, personal loans for bad credit individuals are not a possible solution for debt problems. If you are late in your payments or default on a personal loan, you can expect to face very aggressive debt collection. In a worst case, that can mean a wage garnishment, bank levy, a lien on your personal property,all of them will make your situation more stressful.
Are There Alternatives to Personal loans for Bad Credit Borrowers?
Finding the right debt solution takes work, but it is worthwhile to spend time doing it. You can resolve your debt problems through different programs. Which program is right for you depends on your individual situation. A basic first step is to take a financial snapshot, and you may need professional guidance to do it. Set up a budget. Look carefully at how much debt you have and the size of your required monthly payments. Work on improving your credit score.
Even if you have equity in your house, your bad credit will make getting a cash-out refinance mortgage loan very difficult or impossible.
Here are are some of the main debt relief alternatives to taking a personal loan with bad credit:
- Optimizing credit card payments
- Credit Counseling and Debt Management
- Debt Settlement
Learn more about the different debt solutions through the Bills.com articles about debt relief. The first step can be the hardest, but when you take the right steps, you will be on your way to being debt free.