- 5 min read
- There are a number of debt consolidation loan alternatives for people with bad credit.
- Keep a budet and make sure you choose an affordable payment schedule.
- Choosing a path is a beginning. Make sure you stay on the route your choose.
Bad Credit? Compare Personal Loan to Other Options
Are you struggling with your monthly payments? Did you take on too much debt? If you are looking for a debt consolidation program then perhaps you are considering a bad credit debt consolidation loan; however, finding the right track to debt freedom, or how to consolidate bad credit debt, is not an easy task.
You can improve bad credit, and you can consolidate bad credit debt. No matter which consolidation tactic you use, first make a road plan. Then you can decide if your situation is appropriate for a long uphill ride, a bumpy detour., or an alternative route.
Here are some bad credit debt consolidation alternatives that you can take to improve your situation
- The Easy Route - Reroute Your Money
- Long uphill ride – Credit Counseling
- Rough Bumpy detour – Debt Settlement
- Alternative Route - Bankruptcy
The Easy Route – Optimize Your Payments
Bad credit is usually due to late payments, too much debt, and over-utilization of your credit lines. For many, the cause is a financial or personal hardship, such as a medical emergency, divorce, or loss of income.
However, some people suffer from bad credit due to mismanagement of their budget. No matter which debt consolidation alternative you choose, setting up a budget is your first step. If you do not have a budget, then use the Bills.com personal budget guide.
If you find that you have extra money to use to pay down your debt, then the cheapest route may be just optimizing your payment schedule, avoid minimum payments on your credit card, and aggressively paying down your debt. If you want a fixed payment schedule, then consider sticking with the bad credit debt consolidation loan alternative.
Get a Personal Loan Quote
Not sure if you qualify for a bad credit debt consolidation loan? Bills.com makes it easy to shop for a bill consolidation personal loan. Start by filling in your credit score, zip code, loan purpose, and the amount of loan you need. Check out different offers and click on the appropriate ones.
Long Uphill Ride – Credit Counseling
If you can make your minimum payments, but need a push to get over the hill, consider credit counseling. It is a long uphill ride, but if you complete the program, you will both improve your credit and solve your debt problems.
If appropriate, enroll in a debt management program. A debt management company negotiates with your creditors (mainly credit card companies) lower interest rates and fees. Each month you make one consolidated payment into a special account, and the debt management company then transfers the appropriate sum to each creditor.
Make sure that you make all your payments on time, especially during the transition period. You pay the credit counseling and debt management company an upfront fee as well as monthly payments. It takes about five years to complete the program. Your credit will improve as you make monthly payments on time and lower your debt utilization.
Rough Bumpy Detour – Debt Settlement
Late payments, collections calls, threats of lawsuits are all warning bells that you need to deal with your debt problems. If you cannot see a way to re-arrange your debt because minimum payments are out of your reach, then consider a debt settlement program. It is a bumpy road, but this alternative allows you to eliminate your debt and eventually rebuild your credit.
Start the path by receiving an initial free consultation to determine if you are a good candidate for debt settlement. To qualify you will need to show hardship, otherwise, your creditors will most likely not negotiate an agreement. It is a bumpy road because you stop paying your creditors and your credit goes down further. Your creditors continue with collection efforts, including collection letters, calls and possibly lawsuits.
If debt settlement is the right track for you, then:
- You stop making your monthly payments to your creditors.
- You enroll unsecured debt including credit card debt, installment credit, and some medical bills, and some private student loans).
- You open a designated account, in your name and make monthly deposits. Make sure it is an FDIC account).
- The debt settlement company negotiates a settlement with your creditors. It can also help you deal with collection calls and threats.
Once the debt settlement company reaches an agreement with your creditors, they transfer money to pay off the debt and take their commission. Avoid up-front fees, and only pay the debt settlement company for services rendered and settled accounts).
Debt settlement is a bumpy road and usually takes 2-4 years to complete. Many people find it hard to finish either debt management or debt settlement programs. Remember, be prepared to for either a long up-hill road or a bumpy road.
Alternative Route - Bankruptcy
For some, the best route is to get off the train and get on a different track. One possible solution is bankruptcy, although you will have to show substantial hardship.
Chapter 7 bankruptcy allows you to discharge your qualifying debts without paying them, and hold on to protected assets. A chapter 13 bankruptcy is a court supervised payment plan, whereby you pay back your creditors over a 4-5 year period. Bankruptcy protects you from lawsuits during this period.
Bankruptcy is a complicated route. If deemed the correct bad credit debt consolidation alternative, then consult with an experienced bankruptcy lawyer.
Need Help Finding a Bad Credit Debt Consolidation Solution?
If you aren’t sure which path to take, try using Bills.com Debt Navigator. Answer a few simple personal questions, allow for a soft credit pull, which doesn’t affect your credit, and then receive a personalized bad credit debt consolidation alternative.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Each state has its rate of delinquency and share of debts in collections. For example, in Idaho credit card delinquency rate was 2%, and the median credit card debt was $389.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.