Essentials to Know About Debt Consolidation Options with a Bad Credit

You need to look for all possible lifelines when you are struggling with a debt. Debt consolidation is one of the best lifeboats you can avail as it is easily accessible when you are into a really adverse financial situation. However, before you think of consolidating your debts, you need to ask a critical question:

  • Is there any debt consolidation loan or lenders who can assist those who are suffering from bad or worsening credit?

Usually, the chances are low as the lenders may always take into account the current debt status of the borrower, and the reasons for which they need a loan. They use the information to assess the liabilities in a couple of ways as mentioned below.

Debt to the available credit

Almost all lenders may ask for your credit score and the debt status as the major components of calculating your credit scores. All such credit-scoring models now take into account your revolving balances against the available credit limits. The closer the balances are to the credit limits—typically known as utilization—the more the chances are there for it hurting your scores.

Calculating debt to income ratio

Some lenders may ask for your income statement along with the application. This is in order to compare your monthly payments on all the existing debts to the actual income. They may also consider your capacity to pay the new debts as well. Even when you are planning to utilize debt consolidation options to pay off existing debts, and then start paying off the new loan as fast as you can, the lender may be vigilant about the repayments made by you.

Payment histories

In addition to your debts and income, your payment history may also play vital in terms of getting the debt consolidation loan approved. If there is a late payment or negative marking in your credit reports about payment defaulting, especially in the recent times, it may adversely affect the processing of the new loan.

Improve your odds as a way out

In order to increase your chances of getting a consolidation loan approved, you may first want to do some groundwork before applying, and you can do that by checking all credit reports and scores to identify your position. The stronger your credit score is, the easier it will be to access a consolidation loan with an affordable interest rate.

Finding a specific consolidation loan can always be a bit tough, but not impossible. Some of the options you may come across are the home equity loans (for which you should have equities in your home), and payday loans (which may have slightly higher interest rates). All of these may have pros and cons in your specific case, and to know about it well, it is ideal to undergo an expert credit counseling session.

There are options to shop for personal loans online. You may consider that as an ideal way out for debt consolidation. The application and processing of these loans are much easier, but you need to be aware of the cyber scams associated with online money lending and stay away from it.