Debt Consolidation Loans For Bad Credit

We’ll just say it: life in modern America is expensive. As of 2021, the average American owes $52,940 in debt. For most of us, it can be hard to get ahead without taking on a little bit of debt. But this cycle can be confusing, self-perpetuating, and overwhelming. If you have a mortgage, owe money on a car, personal loans, or credit card payments, it can be difficult to imagine ever paying them off—especially if you ended up spending beyond your means at any point. But there are solutions: debt consolidation, particularly if you have bad credit, is one option for beginning to pay off loans.

However, you may have a lot of questions about what debt consolidation is and how it can help you. Repairing debt is like repairing a house, and not every tool will be right for every situation.

How Does Debt Consolidation Work?

Debt consolidation works by taking out a loan to pay off any of your extant loans, collecting them under one new agreement.

One optional first step is to take stock of your various debts and organize them. Typically, you would start to prioritize them by interest rate, as higher interest rates signal debts that need to be paid off more quickly. The higher the interest rate, the more you need to pay. So, higher interest rates lead to more debt. High interest rates on credit cards and personal loans can quickly balloon and become unmanageable, especially since there is no collateral attached to them like there is for your house or car.

Next, you must locate a company that offers debt consolidation as a service. They can lend enough to pay off large amounts of current debt right away.

There Are Good Reasons to Consolidate Your Debt

Consolidation isn’t a get-out-of-debt-free card, but it can be invaluable for reordering your debt. Taking this step with your debt can be highly beneficial if you owe money to lots of different lenders, and can save you from gnarly hidden fees and exorbitant interest rates from short-term loans.

Ultimately, it depends on what your goals are. You could get a lower monthly payment on your premium but a higher interest rate. You may wind up with a higher monthly payment but a lower interest rate. This makes it more likely that you will pay everything off sooner than you would have otherwise.

Alternatives for Student Debt

If, like many people, you are struggling mostly with private student loan debt, you may want to consider student loan refinancing. Owing money to lots of different lenders can be a hassle, and those interest rates can build up over time. Refinancing your student loans is a way of re-organizing your debt under better terms. Keep in mind that it sometimes functions differently than other kinds of debt consolidation, but the principle is similar.

As with debt consolidation, the goal is typically a lower monthly payment, a more beneficial fixed interest rate, or just to pay one bill a month instead of multiples. Every refinancing option is different, and as with any industry rates may fluctuate over time. Crunching the numbers and doing your own research can save you thousands if refinancing is something you’re interested in.

If You Have Bad Credit, You Have Options For Debt Consolidation

We’ve established that debt consolidation can be revolutionary for people with debts from lots of different sources. But if you’ve had trouble paying off your debts before, it’s possible that you have a lower credit score. According to CNBC, a bad credit score is considered to be one within the 300-500 range.

This puts you in an awkward situation. Debt consolidation could be most beneficial for people who have struggled with debt before. But a lower credit score will make it harder to find an agreement that works for you. It’s not impossible—tools like Monevo will help you find a lender willing to work with your circumstances, rather than against them.

Understanding Debt Consolidation Means Understanding Bad Credit

Debt consolidation may just be the right tool for making your unmanageable debt more manageable. If you have bad credit, you may need to do a little extra work to convince potential lenders that you are serious about paying what you owe. But there is good news. A few months of dedicated work and consistent payments can leave you in a stronger position for finding an advantageous loan.