Why Consider a Debt Consolidation Loan?
Let’s face it, going into debt is never a pretty situation. No matter if you went into debt for school, health, or just because you wanted a bunch of stuff, having a huge bill to pay each month to multiple lenders can be incredibly stressful. You may have stopped answering the phone for fear of dealing with the debt collectors. Maybe you forget about certain lenders, maybe your job just doesn’t pay enough to make ends meet, or perhaps it’s the case that you’re either un- or under-employed. No matter what has brought you to this point, your credit is shot, and you’re looking into how someone gets debt consolidation loans with poor credit.
The first thing you should know about debt consolidation loans with poor credit is that you really shouldn’t get one unless 1) There is no other choice, and 2) You are certain that you will change your credit habit ways. Debt consolidation loans often give those who get them an avenue of false security. You may think “Wow, I’ve freed up x amount of dollars per month and now I can afford to y.” Don’t do it! You can’t afford y! Instead, you should apply that money toward paying down your debt faster. It’s amazing how much money you can free up as you pay debts off.
Interest and the Bad Credit Debt Consolidation Loan
In addition to the potential for doubling your debt, debt consolidation loans come with a hefty price tag - interest. Imagine that you are consolidating $20,000 and you have bad credit. The only loan you are able to get is at a 25% interest rate, though that rate is still a little lower than the 30% you are paying on your credit cards. What’s worse, is it’s compound interest. At the end of a ten-year period, you will wind up having paid $118,735.65 on that debt.
Fees and Debt Consolidation Loans
It is vital when getting a debt consolidation loan that you check for hidden fees as well. Sometimes your interest rate may be deceptively low, but then the fees that the bank charges could be quite high. Be wary of loan companies that offer you debt relief but then charge you to transfer your debt to their bank. While there may be some fees, they should not be astronomically high.
Collateral on Debt Consolidation Loans
Collateral is something that secures a loan. If your debt is high and your credit rating is low, be prepared to be asked for some form of collateral. Be very, very careful about signing a contract for a loan that could cause you to lose your home or primary vehicle. Remember that even if you lose your job or a medical emergency occurs, you will still be liable for paying back the loan, and by signing away your property as collateral on a debt consolidation loan, especially when you already have bad credit, could result in you being without a car or homeless should the bank wish to capitalize on a defaulting of the loan.
Finally, unfortunately, when it comes to bad credit, there’s a lot of scams out there. Be wary of any debt consolidation loan that sounds too good to be true, because most likely it is. Do not trust anyone who says they will completely eliminate your debt, repair your credit, etc. You might be able to find a good credit counselor (non-profit) who can help you to re-organize the way you view money.
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“Compound Interest Calculator” at https://www.moneychimp.com/calculator/compound_interest_calculator.htm