Making ends meet today is hard for millions of people. More people live paycheck to paycheck just to pay the minimum rates on their credit cards than ever before. In fact, it is significantly more common to be in debt than to not have more than a mortgage loan.
But how do you break the cycle?
You have probably noticed by now that there is a common process when you try to get out of debt. Maybe you take out a credit card with a lower interest rate and transfer your balance from another card. But then you have to use that card for an emergency, and now you have two payments instead of one.
Maybe as soon as you had one card caught up, you were late on another, and the minimum amount due skyrocketed to more than you could afford, making you skip the payment and throwing you in a cycle of never-ending late fees and bad credit.
Regardless of the reasons, if you have bad credit and too much debt, you need a solution. Debt consolidation has become a popular, tried and true method to eliminate your debt with an expiration date, instead of a random floating target.
Yet you still have the problem of bad credit, so how do you get a debt consolidation loan?
Here are nine things you can do to get a debt consolidation approval even if you have poor or bad credit.
9 Ways to Get Out of Debt Through a Debt Consolidation Loan
Applying for a debt consolidation loan can be nerve wracking. You are probably already so far in debt by that point that your credit is in disrepair. Chances are you have tried to work with your credit card companies and been told no, attempted to get a decent loan to repay your debts and been denied, or faced rejection in some form because of your bad credit.
You may think there is no way that you will get approved for a debt consolidation loan by this point. But you have options. You can still get approval, regardless of your credit, by trying these tips.
- Focus on the interest rate rather than the length of repayment. Many debt consolidation companies will be willing to take you on a as a client with a lower interest rate than your credit cards with your repayment terms spread out over a longer time period than those with good credit.
This time period will probably still be years less than you would have been able to pay your credit cards off at the minimum payment.
- Turn to your mortgage company for help. Part of your bad credit problem could be your debt-to-income ratio, and a huge chunk of your monthly debt is likely due to your mortgage payment.
Your lender has the ability to adjust your mortgage interest rates, reducing your monthly payment and lowering your debt-to-income ratio in one fell swoop. This can help you get approved for a debt consolidation loan with better terms to help you take care of the rest of your outstanding debts.
- Know your credit score, but don’t stress it. It is important to understand how your credit score affects your financial life. Get your score and analyze it so that you can see the areas that are impacting you negatively and work on those in the future.
Your debt consolidation loan will effectively remove most of your outstanding balances once it is paid in full, but you will then be free to build your credit again, or repeat the same mistakes you had made to get you here in the first place if you don’t understand how credit works.
Don’t stress the credit score number right now – look for debt consolidation programs that will take you just as you are.
- Find a “no credit check” debt consolidation program. These are much more common than you might think. Take some time to shop around and compare the terms, though. Look at the percentage of your debt that they will charge you, plus the monthly service fees, and find one that has rates that look reasonable.
- Consider how much debt you need to consolidate. Maybe you have a credit card that is almost paid off, and you just need a little extra each month to have it paid in full shortly. You can cross that off of your list and take care of that yourself. Cutting a little of your debt out will reduce the risk the debt consolidation company has to take by taking you on as a client and make you a more viable candidate for approval.
- Have a valid source of monthly income. Debt consolidation loans are usually spread out over a period of three to five years. You need a reliable source of income that will be able to safely cover your payment terms for that time.
- Reduce your debt ahead of time. Sometimes too much debt can disqualify you for a consolidation loan, mostly because your lender will consider how much you can afford to pay versus how long their repayment terms are. If you can eliminate a few of your debts before applying for the program, you have a better chance of getting approved.
- Use collateral to get approved. Some types of debt consolidation programs will consider secured loans. If you have collateral to offer, you may be more able to get a lower interest rate and better repayment terms in general.
- Build your financial stability. Financial stability does not mean that you have to be in control of your debts, or else you would not be considering a debt consolidation program. It actually means that you have a solid history of steady income and paying your bills reasonably on time.
Get Out of Debt Sooner Than You Think
While playing the balance game with credit cards can have you ping-ponging through which balances to pay off first while others get the minimum, debt consolidation can take you completely out of the game by paying everything off equally and taking the stress away from you.
In one monthly payment, you will be settling your financial obligations and taking control of your life again.
