How do I consolidate my debt with bad credit?
Debt Consolidation is a broad term people use to mean different debt resolution strategies. Learn four ways you can consolidate debt, three of which you qualify for even if you have bad credit.
Your four options to consolidate debt if you have a low credit score are:
Let’s look at each option briefly.
Credit counseling companies offer financial counseling, budget planning, and creation of a Debt Management Plan (DMP). Credit counselors also negotiate with creditors to obtain concession rates on interest and forgiveness of late fees. Certified credit counselors tailor confidential programs to meet your specific needs. They will help you understand your situation so you can get on the road to financial freedom.
You do not need good credit to qualify for credit counseling.
The typical DMP takes 5 years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan. The monthly payment in a DMP is high, and make sure you can afford the payments before you commit to a DMP. Read the Bills.com article Credit Counseling – Will it Work? to learn more about this option.
Rather than make monthly payments to your creditors, negotiated debt settlement programs negotiate lump-sum or other settlements with your creditors. These plans oftentimes reduce your debts by 50% to 60% of your principal balances, though results vary. Debt settlement usually takes 24 to 36 months to complete, so this can be a good option to obtain debt freedom in a speedy manner. In many cases, debt settlement can also reduce your monthly debt payment.
You do not need good credit to qualify for debt settlement.
There is a major drawback to debt settlement: It will damage your credit score while you are in the program. Your score will rebound once you are debt-free and are paying your bills on time. If you are currently unable to afford to pay your creditors, the hit to your credit score may be worth the benefit of freeing yourself from credit card, medical, and private student loan debt.
Read the Bills.com debt settlement overview to learn is this strategy can help you consolidate debt with bad credit.
Bankruptcy might be your only alternative if you find credit counseling and debt settlement are not feasible. Although you can file bankruptcy yourself, hire a lawyer to do it for you. Why? Most self-done bankruptcy filings fail, and most lawyer-filed bankruptcies succeed.
You do not need good credit, or any credit at all, to qualify for bankruptcy.
There are two types of bankruptcy: Chapter 7 and chapter 13. If you qualify for a chapter 7, all of your eligible debts are zeroed-out by the court. (This is called a discharge.)
A chapter 13 is called a wage earner’s plan. In a chapter 13, people with regular income are put on court-supervised a plan to repay all or part of their debts over 3 to 5 years. At the end of the payment plan, the court usually discharges any remaining debt.
Consult with a local bankruptcy attorney to learn if bankruptcy is a good choice for you. Start with the Bills.com bankruptcy page to learn more about the bankruptcy process, and make an informed decision about chapter 7 and chapter 13.
A debt consolidation loan is probably not a good option if you have a low credit score. Lenders approve loans to people with a consistent income, manageable debt, and a medium to high credit score. Missing any one of these three can put your application in the “no” pile. If your credit score is low, you probably will not qualify for a loan consolidation.
Credit counseling, debt settlement, and bankruptcy have unique pros and cons. Consider each option carefully and weigh the potential benefits and downsides to each before you decide which option works best for you to consolidate debt with bad credit.
I hope this information helps you Find. Learn & Save.