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Can You Consolidate Your Debt if Your Credit Score is Poor?

Getting a debt consolidation plan is like running into the same problem because you will be paying back your new loan. However, the consolidated loan comes with lower interest rates, so you can manage in a better way. Now the question pops up whether you can take out a new loan to pay back existing loans even if your credit score is poor.

Some direct lenders provide you with debt consolidation loans with bad credit and no guarantor. However, this programme is much more affordable if your score is fair. This allows you to have the loan at lower rate of interests. To get a consolidated debt at lower rate of interest, you must have at least 700 score.

If you have applied for these loans and you doubt that you will not be able to pay off high interest or your loan application is turned down, you may put a security against the loan. With collateral, you will get funds at once at a reasonable interest rate. The collateral will be equivalent to the amount you owe. A lender will consider the value of security as well as your job history and income to decide on the debt amount. Though this option comes with lower interest rates, make sure that you are able to pay back your instalments on time. You will lose your security otherwise.

Debt consolidation loans are generally available for personal loans. However, some lenders allow for these loans if you want to take out a new loan to pay high-interest unemployed loans with no guarantor.

Not all lenders follow flexible policies for consolidated debts. Some strictly require you to have a good credit history. If your request is turned down due to any reasons, you should apply for alternatives to debt consolidation loans.

Debt Management Plan (DMP)

It is not a loan. It is a sort of management programme in which consolidation companies collaborate with lenders and insist them on reducing interest rates and waiving off penalties. If parties agreed, you will pay back your loan in fixed monthly instalments to the consolidated company that further dole out money to your lender after deducting fees.

Benefits:

  • Consolidation is possible regardless of your credit history.
  • You will pay lower interest rate.
  • You will pay fixed monthly instalments.

Drawbacks:

  • You cannot take out a new loan unless you settle your debt through DMP.
  • Fees may be a bit high.

Balance Transfer With Zero Percent Interest Rate

Several credit card companies provide the balance transfer option at zero percent interest rate for one to two years. With this facility, you can settle all your accounts faster without straining your finances. However, make sure that you clear all your dues within interest-free time. Otherwise, you will end up with paying very high interest.

Benefits:

  • You will pay no interest.
  • You will pay back your debt quickly

Drawbacks:

  • Beware of hidden fess in case of zero percent interest.

Debt Settlement

Debt settlement is a practice that allows you to pay back a portion of your debt in lump sum. Debt settlement companies collaborate with your lenders to negotiate the debt, which finally settles between 40 to 60% of your original borrowings. Before you opt for this programme, make sure that you can pay high fees of debt settle companies.

Benefits:

  • You will pay a portion of your debt.
  • You will pay no interest.
  • Term may be stretched over 12 months.

Drawbacks:

  • It may drop your credit score.
  • You cannot take out a new loan unless the entire debt is settled.

You can apply for a debt consolidation loan even if your credit report is unfavourable. Do extensive research to settle a deal with the lender, who offers these loans at more affordable interest rates. If you fail to take out these loans, opt for alternatives. However, make sure that your finances will not be ruined and you will settle the whole debt.

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