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Debt consolidation loans for Bad credit

What is Debt Consolidation?

A debt consolidation loan can be a useful tool in gaining control over your debt, especially if you’re subject to high interest payments. While they’re most popularly used to consolidate credit card debt, you can also use them for other types of loans, including auto loans, personal loans, and bad credit loans. There are generally two reasons why you might want to consider getting a debt consolidation loan.

The first is that you want to save money on your interest rate. If you have a high APR on one or more credit cards, for example, you may qualify for a better rate on a debt consolidation loan. It also gives you a finite end time because it’s a type of installment loan, rather than an open line of credit like a credit card.

Another scenario you might be facing is having trouble paying your credit card and loan bills. In some cases, you may be able to take out a debt consolidation loan with a longer repayment term. Although you’ll probably end up paying more interest, it could prevent you from defaulting on your loan and damaging your credit score.

Keep reading to find out more about debt consolidation loan benefits and how to qualify for one.

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5 advantages of debt consolidation loan

Debt consolidation entails the acquisition of a single loan and using it to settle all the other indebted accounts. Most people own multiple credit accounts and numerous credit cards, each bearing some balances. Securing a debt consolidation loan helps you to merge everything into one source. Hence, the tragedy of having to meet multiple deadlines will be no more. You’ll just have to focus on a single monthly repayment. This, in turn, helps you to adequately manage your finances.

Reduced interest rates

Another amazing benefit of consolidated loans is that it relieves you of huge interest charges. Credit cards bear higher interest rates as compared to other forms of interest rates. By securing debt consolidation loans, you’ll be in a position to enjoy minimal interest rates which, in turn, would save you several dollars in the long-run.

Physiological benefits

Consolidated loans will give you peace of mind to concentrate on other important tasks at hand. You do not have to worry about how you’ll repay multiple loans at the end of each month, you’ll only have to deal with a single creditor.

Helps improve your credit record

Consolidating your debts will greatly improve your credit profile. Remember, your credit record is your overall financial reputation. To minimize the chances of damaging your credit score, consolidate your debts into a single loan so that you’re able to make lump-sum timely repayments. A damaged financial record can jeopardize your credit movement. For instance, it might deter you from obtaining mortgage or car repair loans.

Also, consolidating your loans into a single loan can go a long way in rebuilding damaged credit scores. If you make consistent late loan repayments, your credit score can be hurt. It’s, therefore, advisable to consolidate your loans so that you are able to stay on top of repayments. This will greatly help you replenish your creditworthiness.

Long-term financial health

Multiple loans can be nagging. However, with consolidation, you are free to concentrate with a single loan. You’ll effectively manage your loans, giving you a peace of mind to concentrate on your other business. Also, consolidation helps you put your credit conduct in order. Even if you’re struggling to keep up with your payments and get a slightly higher interest rate, a debt consolidation could help you long-term if the payments are spread out over a longer period. Yes, you may pay more in interest, but you could also be saving your credit score and more serious repercussions if you were to default on your existing debt.

What to do if your debt consolidation loan application is denied

If you don’t initially get approved for a debt consolidation loan, or your loan offer has a higher interest rate than what you’re currently paying, there are steps you can take. The most important thing is to work on improving your credit score. If you have a lot of debt, focus on aggressively paying down your credit cards first, then check to see if your score has improved. This is one of the fastest and most effective ways to quickly boost your credit.

Additionally, keep paying all of your bills on time. Consistently doing this while also paying down one of your credit cards can improve your chances for finding a better deal on debt consolidation loans. Wait a few months and try again when your score has improved. Read more about improving your credit score here.

Watch for prepayment penalties

Just as you would with any other type of legal agreement, check your existing loan terms for potential prepayment fees. Some lenders charge you if you pay off your loan early, including if you use a debt consolidation loan. This is just one more consideration you have to weigh in order to determine if a debt consolidation loan makes send for you in the grand scheme of things.

Updated on 2018-09-13

Lauren Ward

Lauren Ward
Writer and editor

Specializing in original, well-researched web content, including blog posts, news articles and web copy. Areas of expertise include personal finance and lending. 10 years of experience as freelance writer and working at Federal Reserve Bank of Richmond.
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