How to Get Debt Consolidation with Bad Credit?

With so much fast, easy, available credit, it’s easy to lose track of everything you owe. That’s why debt consolidation loans are so attractive. They are simple and effective ways of paying debts, one payment per month, replacing and consolidating all other debts. In some cases, that means clearing the balance and closing old accounts. People with bad credit history and a lot of debt see them as the answer to managing their debts and repairing their credit score. However, bad credit customers often find they are not eligible for some types of debt consolidation loan. Usually, this is because of their credit history.

Why are people with bad credit rejected debt consolidation loans?

People who have low credit scores are perceived a high default risk. This often means they have already defaulted; such defaults impact the score more than most people realise. Other factors that will impact your score include County Court Judgements (CCJs) and Individual Voluntary Arrangements (IVAs). Both are methods of avoiding bankruptcy which will also greatly impact your credit score.

Undoubtedly, debt consolidation loans are highly useful. They do not just make payments easier; they also help repair a credit score. Most people seek them as they reduce the high-interest rates imposed on some types of borrowing. Problems arise, however, when your credit score is too low. There are debt consolidation loans open to you though they may come with conditions such as a guarantor or security. Not all though; there are some fast loans no guarantor options, but you must be selective and ensure they will accept people with bad credit histories.

What score do I need for a typical debt consolidation loan?

Unfortunately, to qualify for most debt consolidation loans, a good credit score is vital. Having a lot of debt won’t give you a bad credit score, poor payment history will. The minimum required score will vary, but the best deals with require a FICO score is 580. Anything below that and you’ll struggle to attain credit. Some may request a minimum of 640 or even as high as 700. The higher your score, the better chance you’ll have of an approval. It will also mean lower interest rates. The highest interest rates will apply to consumers with the lowest scores such as those in the 580-700 bracket.

A debt consolidation loan will help repair your credit score. If you already have a low score, most are closed to you. There are debt consolidation loan options for people with poor credit. If you’ve been refused other types of debt consolidation loans, stop applying for them and consider your options.

Debt consolidation loans: your options when you have bad credit

The first thing to do is to stop applying for regular debt consolidation loans. If you have been rejected for one, more will follow if you keep applying. Rejections impact your score; your chances of acceptance will not increase, only decrease. You will find it harder to get the type of loan you need to consolidate your debts.

  • Repair your credit score and wait
  • The first and most obvious piece of advice is to manage your current debts. Make sure you keep on top of payments and close unnecessary credit cards. Close any dormant credit agreements and consolidate your debts that way. If you have spare cash, use it to pay off extra whenever you can. This may not be an ideal solution for most people, especially those who cannot rely on extra cash. It is also likely that this method is the most impractical as you may already be doing this, have done it, and would not otherwise be looking to consolidate debts further.

  • Ask someone to be a guarantor
  • A second option if it is out of the question not to take out a loan, is to seek a guarantor. This is where a third person agrees to take on the debt should you fail to make a scheduled payment. With guarantor loans, the provider checks the credit rating of the person agreeing to guarantee it. Your credit rating will not matter. So long as the person agreeing to guarantee it has a good credit score and is able to pay, they will become liable for it.

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  • Secured debt consolidation loans
  • The other option is to apply for a debt consolidation loan against a security. This type of loan is better when borrowing a lot of money. The security is usually a high-value piece of property such as a home or business premises, or a certain amount of equity. Other high-value possessions could include – depending on the provider – investments, accounts, stocks and shares. This can be risky as the creditor may seize such property if you default.

  • No guarantor loan
  • Some services offer debt consolidation loans that require neither a guarantor nor collateral. When looking at this type of loan, ensure that they apply specifically to people with bad credit. Debt consolidation loans are a good option to repair your credit score and to make it easier to manage your money.

FG Editorial Team
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