Debt consolidation is the process of combining multiple debts into one so that you can ideally get a lower interest rate. Getting a debt consolidation loan does not reduce the amount you have to pay off overall, so it is not a technique you can use to eliminate debts completely. This method is merely used to simplify your debts into a single payment rather than leaving you to worry about multiple credit card or loan balances each month.
The two main ways to get debt relief through consolidating your payments are to open a balance-transfer credit card or apply for a consolidation loan. There are other ways to consolidate your payments as well, but they tend to come with more risk. Below, learn more about getting out from under your debt by consolidating your payments.
Is a debt consolidation loan right for you?
If you have a lot of credit card debt or are feeling overwhelmed with your student loans, you may be wondering whether consolidating is a good idea for you. Because everyone has a different financial situation, it is important to consider your own circumstances rather than trying any method that seems to deliver results for others.
There are many ways to get debt relief, and while all of these programs may sound like a great idea at first, they are not right for everyone. Debt consolidation is just one way that you can repay your debt with more agreeable terms or manageable payments. In addition to a debt consolidation loan, other methods for coping with debt include:
- Contacting your creditors directly if you are having trouble with payments.
- Working with a reputable debt relief service, which is a method for developing a payment plan that helps you manage your current debts better.
- Seeking credit counseling, which is offered by agencies that can help you budget and make debt payments on time.
- Signing up for a debt settlement program, which is a service offered by for-profit companies that help you set aside money until you are able to pay an agreed-upon amount in full.
A debt relief service may seem like a life-saver, but it can come with risks. If you are struggling to pay your student loan debt or any other form of debt, make sure you only work with reputable services and that you choose a program that truly fits your needs.
How to Consolidate Credit Card Debt
Many people seek out debt consolidation when they are feeling overwhelmed with credit card payments. In some cases, this type of debt relief can be a wise option for managing debt.
The most important thing to remember before you consolidate credit card debt is that this method involves taking out a new loan or opening a new credit card. This method does not erase your debt or reduce the amount you owe, and your new loan or credit card balance must be repaid just like any other debt. Rather, credit card debt consolidation can be used to get a lower interest rate or a loan that is more manageable.
If you decide this method is right for you, the next step is to choose whether you want to apply for a debt consolidation loan or a balance transfer credit card to combine all of your debts into a single account. Keep in mind that the goal of credit card debt relief is to save on your interest payments. Therefore, you may want to narrow your choices to companies and services that allow you to transfer debts without a fee or interest payment.
When you choose debt consolidation loans bad credit may play a role in determining which services you are eligible for. Be aware that your options for interest-free balance transfers may be limited if you have poor credit.
How to Get Debt Consolidation Loans with Bad Credit
Learning how to get out of debt can feel overwhelming at times, especially if your credit is less than ideal. When considering a debt consolidation loan bad credit may negatively affect you, just as it would when opening any new credit account. In most cases, having a credit score below 580 may make it more difficult to get debt relief by consolidating your accounts into one.
However, when it comes to debt consolidation bad credit does not necessarily make you ineligible for every service. This is because lenders consider more than just your credit score. For example, some debt consolidation programs may accept you with a low credit score as long as your debt-to-income ratio is favorable.
Generally speaking, if your score falls within the 580 to 740 range, you will have a much better chance of getting approved for a loan with better terms. If you cannot consolidate credit card debt right now due to having a lower score, you can still take steps to improve your credit for the future. For example, paying down the balance of certain debts on your own may improve your score over time and increase your chances of getting approved for a debt consolidation loan later on.
Always remember that signing up for a debt consolidation service is not your only option. There are plenty of other methods for paying off debt, and you may even find that one of these works better for your situation. If you cannot get out of debt by consolidating your payments, you still may get approved for a different type of relief.
Learn About Debt Consolidation Companies
Finding the best debt consolidation option is a matter of personal opinion. For some people, a debt consolidation loan is more favorable than rolling individual debts into a single credit card payment. For others, the best form of debt relief is found through an entirely different approach. Ultimately, the most effective form of debt consolidation for you will depend on your current financial situation.
There are many debt consolidation companies to choose from if you decide that this option is the best one for you. When comparing debt consolidation programs, one of the most important aspects to consider is not just the initial interest rate you can receive, but how the interest rate will change over time. With debt consolidation bad credit can worsen over time if your new interest rate increases after a promotional period and you are unable to keep up with your payments.
Remember that when getting a debt consolidation loan bad credit may prevent you from being accepted at one company, but you may still be approved through another program. National Debt Relief, for example, is one option that frequently accepts applicants with poor credit. However, there are risks to using this program and other similar services, which you will want to consider carefully.