Debt consolidation is the operation which consists in making a single loan from a financial institution or a private lender in order to group a set of debts together with the ultimate aim of having only one monthly payment to settle. However, is debt consolidation for bad credit a reliable solution?
When is it possible?
Debt consolidation is an option to consider and an alternative to take into account when a person is overwhelmed by his debts to several creditors, about to declare bankruptcy.
To obtain debt consolidation with a financial institution, you need an acceptable credit score, a stable job and sufficient income to demonstrate that you will be able to settle this loan.
Also, some banks ask to have a solvent endorser as well as the cancellation of credit cards with a ban on acquiring new cards.
Is it the right tactic to settle debts?
Debt consolidation is a solution that makes it possible to settle favorably the debts of people who have incomes higher than their expenses, an acceptable credit report and debts mainly from credit cards.
This option is particularly advantageous if you have debts to pay at particularly high-interest rates such as those of credit cards, utilities or other consumer loans.
This is a good tactic because consolidating debts leaves more room for maneuver in debt and allows them to lower the interest rates they have to pay. It is also a way to protect your credit score since the loan is used only to pay off creditors.
What if my bank refuses my debt consolidation?
Because sometimes banks refuse to accept debt consolidation requests due to bad credit from customers, there are lending companies that, no matter the state of your credit report, agree to issue you a loan. in order to consolidate your debts. This solution also offers many advantages such as:
- Requires no credit check, no proof of income and only a little documentation.
- A lower interest rate than that of a credit card, therefore, saving on the interest payable.
- A single monthly payment makes it possible to simplify the financial management of your debts but also to make the complete and rapid payment of all your creditors.
- An opportunity to see your credit rating go up quickly because these loans are generally granted very quickly.
- No late payments are generally declared to credit agencies, which is not the case with other creditors.
How does debt consolidation work?
To do a debt consolidation, you must first take the time to list all your debts with their amounts so that you can establish a total amount of your debt. After compiling your list, you can then apply for a loan to consolidate all your debts into one with the loan company of your choice. In general, if your loan is accepted, you receive the money very quickly directly into your account and you can then start paying your unpaid debts to each of your creditors.
Debt consolidation in bad credit is a possible solution for debt settlement and recommended by financial institutions because it is a sign that you intend to take matters into your own hands in order to get out of a bad financial situation.