If you find yourself in an unbeneficial situation with multiple loans, including credit card debt, your need for appropriate debt management is higher than ever. The monthly payments required to pay off several loans at the same time could be simply more than what you can handle, especially with high interest rates.
Nonetheless, there’s a way even bad credit borrowers could consolidate debt, regardless of your current credit score. A debt consolidation loan helps you maintain a lower interest rate paid on a single loan, rather than paying high interest on multiple loans. If you find yourself in such a situation, chances are you could use expert advice on debt consolidation loans, how they work, and how to secure them.
What Is a Debt Consolidation Loan?
In essence, this type of loan is one of the few ways in which poor credit borrowers can get help for easier debt repayment. If you have already taken several loans with monthly payments, you’ll likely end up paying high interest on each of the loans taken.
That’s where a debt consolidation loan could come in handy since it unites your debt into a single loan with more convenient interest payments. This way, you can at least save on the monthly interest, which is not a factor you should overlook lightly.
These loans are usually the best solution for credit card debt combined with other types of loans like installment loans. You won’t have to worry about securing this type of loan even if you have bad credit. Consolidation loan lenders are used to issuing loans to customers that are unable to repay their original loan rates. Of course, that doesn’t guarantee that you’ll get the loan regardless of your financial routines and capabilities, so read on for further details on how to get this loan.
Taking a Debt Management Plan
Looking for debt consolidation loans might be a good move if you find yourself in overwhelming debt from multiple loans taken. Also, if you are unfortunate enough to stumble upon predatory lenders, this type of loan could be your only solution.
A debt consolidation loan is a type of personal loan that gives you the chance to pay a single monthly installment rather than multiple loan rates. So, the first move when you’re willing to apply for this loan is to find an appropriate lender that will offer more convenient repayment terms.
As you don’t want to stumble across the mentioned predatory loan institutions, it’s best to browse credit unions and online consolidation lenders. Chances are that, with credit unions, you’ll find more suitable repayment terms as these financial institutions are customer-oriented.
Because of this, they will try to help you out with fair conditions, rather than just making you go over your head with a high interest rate. It’s also a wise move to turn to credit counseling before you decide on which loan to take.
Personal protection is crucial here since failure to repay a debt consolidation loan would be devastating for your credit scores. To ensure that you know all the details when applying for this loan type, our experts will lead you through the process!
Applying for a Debt Consolidation Loan—Step by Step Guide
Making your move towards erasing your existing debt might be exhausting and tiresome, but there are some actions you can take to make it easier. Of course, it’s not as simple as taking short-term loans like Bank of America payday loans or other short personal loans.
Remember, this is a loan that you take as a last resort to get rid of the bad interest rate paid on individual loans you previously took. So, you have to arrange a single monthly payment that you are 100% certain you can repay.
Follow these steps to first find suitable lenders, and then make your move towards securing a consolidation loan with the most convenient terms:
1) Observe Your Credit Card Debt History and Scores
Checking your credit reports is the first thing that debt consolidation lenders will do, so you should do it yourself before applying. You can also hire a financial expert to tell you the difference between the options you easily qualify for, and the loans that you have no chance of getting.
If you find yourself in high interest debt, chances are that it will negatively reflect your credit rating. However, the whole point of a consolidation loan is that, even with bad credit and existing debt, you would be able to qualify.
Still, it doesn’t mean that lenders will take you lightly and approve the loan without taking a look into your credit score. In a nutshell, FICO credit scores between 750 and 650 will usually allow you to secure a loan. Even so, if you have a rating below 600, there’s a chance that lenders will allow you a loan, but only with the higher interest rate, according to your credit report.
2) Consider the Consequences
Before you even think about taking a consolidation loan, you should consider the mark that it could leave on your credit history. Even though it could be your only way out of other bad credit loans you took, you should realize that these loans will remain on your history for the next 7 years from fulfilling the repayments.
Of course, this could go to your advantage if you make your moves wisely and arrange convenient terms to consolidate debt. Consolidation lenders that offer a lower interest rate could even help you get a positive mark on your credit history this way if you fill out your monthly payments as expected.
3) Find a Lender Performing a Soft Check
Now that you know all the essentials of checking your credit score and potential consolidation loan consequences, it’s time to apply. Before taking a look into lenders of consolidation personal loans, you should first be aware of the marks that credit checks leave on your rating.
If you find yourself in need of a loan, you probably don’t want to apply with lenders performing hard checks. Hard checks could leave a negative marking on your history since the lenders will observe all your transactions, previous loan history, and record of previous loan repayments.
Nevertheless, the most important factor is—the results of a hard credit check conducted could remain to impact your credit ratings for years to come. On the other hand, a soft credit check only requires your name, address, and date of birth for the lender to take a swift check of your financial capabilities. You can count on lenders performing soft checks to issue a consolidation loan to you, and this wouldn’t leave a mark on your history.
4) Send a Consolidation Loan Inquiry
For proper debt consolidation, you need to find a lender based on all the factors that we’ve discussed previously. So, you need a lender that performs soft credit checks, offers a convenient interest rate, and has a proper debt arrangement in terms of negotiable conditions.
Now that you are fully aware of the weight that debt consolidation comes with, you’re ready to send a loan inquiry. You can do it through online lenders, credit unions, or find a third option yourself. The most important thing is—you need to provide all the details to get a debt consolidation loan.
This includes your personal details, such as your name, date of birth, address, and Social Security Number. More importantly, the lenders will review your financial stability and your chance to offer collateral. Sadly, home equity is perfect proof that can vouch for your ability to repay, but it also makes a pressure point for borrowers. Either way, you can ask for a loan prequalification to see if you can qualify for debt consolidation loans that specific lenders offer.
5) Compare the Loan Inquiries and Terms
Based on all the details in the equation, you can decide on which loan is the best option for you by comparing the prequalification results. The best way to do so is to rely on soft credit checks for prequalification, as these don’t leave a mark on your ratings.
So, without further endangerment of your credit ratings, you would be able to see which lenders would accept you for a loan. Debt consolidation loans also come with different terms and rates, so you should compare the offers based on prequalification results.
Naturally, you should go for a loan with the lowest possible interest rate to save some money on the debt consolidation loan. For instance, finding a loan with 9% interest is much better when compared to multiple loans you previously took that come with 14% or higher. Although your primary concern is to repay the number of your previous loans taken, it still could make a big difference and save you some money.
6) Use the Loan Approval to Pay Off Debt and Improve Credit Score
If you get approved for a consolidation loan to repay multiple debts, you can also get more benefits from it. If you go through credit counseling, you’ll know that getting debt consolidation loans approved could result in higher credit scores if you’re able to repay on time.
Getting a loan with a bad credit score may seem tough, but you shouldn’t despair, even if you get rejected. You can keep sending inquiries with soft credit score checks to find a loan with bad credit and is suitable for your capabilities.
Just like comparing payday loans, it’s crucial to compare each debt consolidation loan for the best possible terms. Finally, if you repay on time, it could drastically affect your credit score. High-interest debt from your initial loans is therefore transferred into monthly payments with a much more convenient interest rate.
Get a Co-Signer to Vouch for Your Loan
If you wish to save your credit score unaffected by the loan inquiries, you could find someone to vouch for your ability to repay. Still, it’s a risky move, and you should only pull it in the following scenarios:
- Co-signer is someone you have confidence in
- You are certain that you will always respect monthly payments
- You have a steady source of income
- You can repay on time, but wish to reduce the risk to a minimum
Also, your failure to repay on time could result in a lower credit score for your co-signer. With all these details in mind, you should be responsible and set someone who trusts you completely to vouch. Additionally, you have to ensure that you can manage your monthly repayments on time throughout the debt consolidation loan.
It’s best to pull this move if you are certain of your source of income, but don’t wish to take any chances. If you get denied a debt consolidation loan request, it could negatively reflect your credit score even further.
So, it’s a great form of insurance if you have all it takes to repay on time, but wish to reduce the chance of being rejected. This way, the credit score of your co-signer will be audited instead of your own, giving you a higher chance to get a debt consolidation loan approved.
Join a Local Credit Union
If you can’t seem to get your online debt consolidation loan approved, a great alternative is to turn to credit unions. This way, you can have the rates on your personal loans capped at 18%, while a hard credit check is required for this option.
Still, if you become a member and negotiate the terms, you’ll have a chance to get a debt consolidation loan approved. Nevertheless, paying a membership fee doesn’t seem that attractive for borrowers, and this makes online lenders a slightly better option.
Either way, you can at least have a few options open and browse your loan opportunities to find a suitable one for your financial capabilities.
Final Thoughts on Getting a Debt Consolidation Loan
As much as getting a debt consolidation loan to repay your existing loans seems like an even greater problem, you can manage your debts easier this way. If you play your cards right, you should be able to secure a personal loan that provides you with a lower interest rate than your previous loans.
In addition, taking one personal loan to unite all the loan payments in a single monthly payment could make your financial life easier. Hopefully, this guide can help you find out everything about the loans and apply for a debt consolidation loan. Ultimately, these personal loans should help you reduce your debts and improve your rating, so you shouldn’t approach them with fear of getting into further debts.
Debt Consolidation Loan FAQ
What Credit Score Do You Need for a Consolidation Loan?
To secure a debt consolidation loan, you should have a FICO rating between 750 and 650; however, there is an option to get a loan with bad credit. Still, if you have a score lower than 600, you should count on a slightly higher interest rate, which can make your loan repayment much tougher.
Can I Get a Debt Consolidation Loan With a 640 Credit Score?
If you have a score lower than 650, there are several ways in which you can submit a debt consolidation loan inquiry. For example, you could rely on a co-signer to vouch for your ability to repay on time, as in that case the voucher’s credit scores will be observed. Also, you can focus on soft-check institutions to prevent further harming your score.
Why Can’t I Get a Debt consolidation Loan?
If you can’t qualify for a debt consolidation loan, it could be due to poor credit rating or the hard check provided by the lender. Still, there are a few reasons why you shouldn’t go for a loan with bad credit, such as a high interest rate and inconvenient repayment terms. If you can’t get an online debt consolidation loan, you can apply for a loan with your local credit union.
Can a Debt Consolidation Loan Improve My Credit Rating?
If you find a debt consolidation loan with a convenient interest rate, you could end up improving your FICO scores. Simply repaying on time could result in a slightly higher score after you finish your loan repayment since the mark on your credit report remains for 7 years upon loan repayment.
Is it Better to Choose a Lender With a Hard or Soft Credit Check?
Choosing a lender with a soft credit check is always better since this form of check doesn’t leave a mark on your history. Additionally, if a hard credit check entity denies your loan inquiry, you could end up having a negative reference on your rating, so it’s always better to go with soft checks.
