- 5 min read
- Prepare and analyze your budget and check your credit.
- Shop around for a Bad Credit Debt Consolidation Loan
- Check other Bad Credit Debt Consolidation options
Steps to Consolidate Debt Using a Bad Credit Debt Consolidation Loan
How can you consolidate debt with bad credit? Are you considering using a bad credit debt consolidation loan? Perhaps that is a good solution, but be sure that you know how to find the best debt consolidation alternative.
Did you know that according to Experian, one of the three major Credit Agencies,
“66% of Americans had a credit score of good or better”
That means 34% of the consumers with credit scores were dealing with either Fair Credit (580-669) or Poor Credit (300-579).
Before you take a debt consolidation loan, you want to make sure that you are finding a solution that helps you get out of debt, save you money, and avoid future debt problems.
Learn how to use a Bad Credit Debt Consolidation Loan, or use a different debt payoff solution:
- Set Goals - Get On the Right Track
- Create a Budget - Make Timely Payments
- Debt Consolidation Loans - Shop for Best Terms
- Look at Other Debt Consolidation Alternatives
- Be Perseverant - Stick to Your Plan
How to Consolidate Bad Credit Debt in Five Steps
No matter the reason for bad credit, a sudden financial hardship, or poor financial habits, finding the right track to debt freedom is not an easy task. Here are five steps to take:
Step 1: Set a Goal: Get Out of the Bad Credit Debt Cycle
The bad credit debt cycle - late payments, increasing your debt load, lower credit score, and the scramble for new credit to pay off increasingly expensive debt – is frustrating, stressful, and unproductive.
Knowing that you have financial problems is easy. It is not usually so easy to deal with your bad credit debt problems. Emergency bills, loss of income, or overspending are three common reasons for debt problems. Here are some signs of bad credit:
- You don’t make your payments on time.
You use too much of your available credit balance. (If you have a credit card balance of $10,000, then do not use more than $3000).
- You apply for too much credit.
- You apply for too many credit cards in too short a time.
You can measure your creditworthiness by your credit score or your DTI ratio. A low credit score or a high DTI prevents you from taking on low-interest debt. Your first step is to map out your route.
Bad credit can be due to financial hardship, or due to poor financial habits. Before you look for a debt consolidation loan, it is essential to commit to taking the right steps to improve your financial situation. Understanding your problems will help you move on to step 2 - Making a Workable Budget.
Step 2: Set Up a Workable Budget
Setting up a budget is your next step. If you do not have a personal budget, then use the Bills.com budget guide. Make sure that you can answer these questions:
- Do you have positive or negative cash flow?
- Where can you cut back on your expenses?
- What is your debt to income ratio? How much of your income goes to servicing debt?
Making a budget is not an answer to your problems; however, it is a guide or a roadmap to help you determine the best route to take. If, for example, you can afford high monthly payments, then taking out a bad credit debt consolidation loan will get you out of debt quicker and most likely save you money.
Step 3: Debt Consolidation Loans - Shop for Best Terms
Bad credit debt consolidation loans are a tricky product. On the one hand, you want to avoid scams and debt trap payday loans. On the other side, there are bad credit debt consolidation loans, especially for people whose credit score is on the rebound.
If you are looking to consolidate debt with a bad credit debt consolidation loan, then shop around for the best terms. It is essential to look at interest rates, origination fees, monthly payments, and pre-payment penalties.
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.
Step 4: Look at Other Debt Consolidation Alternatives
If a bad credit consolidation loan is not available, or it isn’t a good fit for your situation, then check out other bad credit debt consolidation options.
Quite often bad credit makes it hard to qualify for a debt consolidation loan. Or, if you do qualify, the interest rate is too high, and the payments are not affordable. However, you don’t need to give up. Fortunately, there are debt consolidation alternatives for people with bad credit, including Credit Counseling and Debt Management Plan, Debt Settlement, and Bankruptcy.
Get a personalized debt consolidation consultaton
Not sure which is the best alternative? Get a free consultation to get a personalized plan to fit your budget and meet your needs.
Step 5: How to Consolidate Bad Credit Debt? – Perseverance
No matter which route you choose, be perseverant. Getting out of debt is harder than getting into debt. Choose the track that fits your situation. As your bad credit improves, you can look for other solutions, including maximizing your payment schedules and loan consolidation options, such as a cash-out home refinance loan.
Bad credit is not an excuse to avoid taking care of your debt problems. Use the best consolidation bad credit debt method. Remember, make your plan and stick to it.
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2022 was $16.91 trillion. Housing debt totaled $12.26 trillion and non-housing debt was $4.65 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Massachusetts, 17% have any kind of debt in collections and the median debt in collections is $1580. Medical debt is common and 4% have that in collections. The median medical debt in collections is $408.
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.
I fell behind in payments due to medical problems and loss of income. I am not sure which is my best solution? I was considering a home equity loan, but can I qualify with a credit score as low as 620?. thanks
A home equity loan or a cash-out refinance mortgage are excellent options if you want to consolidate debt and lower your monthly payments. Mortgage interest rates are much lower than credit card or unsecured debt. When shopping around, consider how much you can afford and match that to the length of the loan. A 620 credit score is enough to qualify for an FHA or conventional mortgage. However, some lenders have stricter requirements. So, it is a good idea to shop around.