Business and Finance

If you are one of countless Americans who are feeling like they have no financial breathing room there is one thing that you can do to help yourself now and stay on a solid long term financial track. Debt consolidation loans are one of the most used and best tools for relieving financial hardships among those who are burdened with too much unsecured high interest debt. These debts are usually things like credit card, store credit, and other types of debt that if not managed properly can quickly spiral out of control and can lead someone to have no spare money because of all the payments they are making on these inherently higher interest debts. The biggest problem with debt of this type is that usually, only a minimal portion of the payment is actually applied to the principle balance of the loan.

A debt consolidation loan works by securing unsecured debt. With this type of loan the debtor will usually go into their financial institution and put up something as collateral, usually equity in a home in exchange for the loan. The loan is used to pay off the balances of many smaller debts and the consolidation loan usually has a lower interest rate than the net rate of the smaller loans. This will lead to more of each payment being applied to the principle balance of the loan and therefore the balance will be paid off more quickly. The key is to remain out of debt after the loan is paid off.

Poor credit debt consolidation loans are an excellent option to consider if you are an individual who wouldn’t qualify for a traditional loan, but are in need of money to pay off bills, consolidate debt into one lower payment, and improve your style of living.

Understanding the exact meaning of a poor credit debt consolidation loan is extremely important. Poor credit debt consolidation loans are meant with individuals that have low credit report scores, as rated by Experian.com, Transunion.com, and Equifax.com These three credit bureaus are where lenders turn to prior to offering a loan to a business or individual. Lenders obtain an individual’s credit scores to determine if the person is worthy of the loan. Scores listed through the three credit bureaus are configured and calculated using software by the Fair Isaac Company, and are called FICO scores. The FICO scores range between 300, for no credit, and 850, for perfect credit.

Virtually no one has perfect credit scores at 850, because scores are based on a number of factors, including debt to income ratio and late payments, to name a few. However, scores of less than 619 are considered poor credit, and scores below 550 make it virtually impossible to obtain a loan except in certain instances where a lender specializes in poor credit debt consolidation loans and is looking for such borrowers. In general, though, scores below 619 are considered poor credit, and the borrower is considered a high risk to the lender.

Having poor credit is difficult, and it’s not ideal by any means, but it also doesn’t have to be something that lasts forever. Credit scores need not rule out the options a loan can offer. Relief can come with obtaining a poor credit debt consolidation loan. While it does take time, credit scores can definitely be repaired after obtaining a poor credit debt consolidation loan.

When conventional loans are out of the picture due to low credit scores, a poor credit debt consolidation loan can offer a way out of having poor credit, and a way of repairing credit scores and creating a better lifestyle. Poor credit debt consolidation loans can come at a time when the borrower needs money the most – when payments are high, or when income levels aren’t high enough to pay all of the bills. They are available to even those that are self-employed or have been involved in a bankruptcy more than ten years ago. Additionally, a poor credit debt consolidation loan offers a “light at the end of the tunnel” for repaying debt faster, as well as consolidating all bills into one smaller monthly payment. By making these payments on time, credit scores can jump as much as 100 points or more in one year.

Pros of Poor Credit Debt Consolidation Loans

1. Poor credit debt consolidation loans put money into the hands of an individual who wouldn’t otherwise qualify for a loan.

2. These types of loans give borrowers a chance to consolidate their debts and gain control over their financial state, as well as an opportunity to invest in a home or automobile if needed.

3. Poor credit debt consolidation loans allow individuals to borrow money without giving a reason, and therefore, can be used for any purpose, including a college education or a business.

4. A poor credit debt consolidation can allow the borrower a way to improve their credit rating, provided that all payments are made on time.

5. There is an emotional and psychological impact involved with poor credit debt consolidation loans. It gives individuals an opportunity to turn their life around and improve it when they previously felt that it was hopeless. Poor credit debt consolidation loans can also help individuals stay out of bankruptcy.

Cons of Poor Credit Debt Consolidation Loans

1. The money goes into the hands of an individual with a history of poor spending habits. If the money is used in a wasteful manner, or to “splurge” on a high ticket item, for example, the loan will only add to the current financial burden if it is not used efficiently and wisely. An additional loan used for these purposes can lead to bankruptcy and financial destruction.

2. If payments are consistently late after obtaining a poor credit debt consolidation loan, credit scores will drop even more.

3. Interest rates are much higher on poor credit debt consolidation loans than for conventional loans. However, if the loan is used wisely, it can be refinanced at a lower interest rate once credit scores increase.

4. Poor credit debt consolidation loans that involve collateral may mean that if the money is not used wisely, ownership of the collateral may be at stake. The lender has the right to take the collateral if payments are not made on time or not made at all.

After obtaining a poor credit debt consolidation loan, and the debts have been paid, get your finances in order. Balance your checkbook to the penny, and don’t make any unnecessary purchases. Don’t make extravagant purchases, either. Remember, the reason for obtaining the poor credit debt consolidation loan was to get back on track. Don’t employ poor spending habits that can make credit scores end up even lower.

Stay away from high interest credit cards, credit cards that can’t be paid off monthly, and especially, payday loans. If a large purchase is needed, such as furniture or a vehicle, look into used items. Furniture can be purchased at thrift shops and through newspaper classified ads. Join your local Freecycle group (freecycle.com) to obtain items for free that you might otherwise consider purchasing. Shop for vehicles through private owners, not at car dealerships. Privately owned vehicles will offer a lower cost to you without any added costs. Have a trusted mechanic check the vehicle over before you pay for it, though.

By now you have probably looked at least a little at debt consolidation loans, but now you wonder if the government offers anything. The good news is that they do, the bad news, for some of you, is that they focus on students.

The primary focus of government debt consolidation is on students because of just how far into debt many students have to go just to make it through school. They suffer from student loans, credit card debt, and medical bills, and this continues to pile up as they work their way through school. What’s worse is that students don’t usually have very good jobs A) because their learning in order to get one and B) because they don’t have as much time to devote to it.

There are four different government debt consolidation plans, and two of them happen to take your income into consideration to help you out just a little more. They are the standard repayment plan, the extended repayment plan, the graduated repayment plan, and finally the income repayment plan.

The standard repayment plan:

When you undergo debt consolidation under the standard repayment pan, you can pay off your debt over the period of ten years. Both the interest rate and the monthly payment on these loans are fixed from the beginning.

The extended repayment plan:

When you undergo debt consolidation using the extended repayment plan you can extend the amount of time taken to pay off your debts for up to 30 years, depending on how much you are trying to pay off. Since the interest rate is fixed on this plan as well, you will end up paying a bit more, but your monthly plans would be lower and easy to handle. It also makes it easier because you can decide how much you can handle each month.

The graduated repayment plan:

This debt consolidation plan is a lot like the extended payment plan with one key difference. Your monthly payments would increase a set amount every two years. If you decide to use this plan you need to make sure and let the lender know exactly how much to increase the payments by.

The income payment plan:

This debt consolidation plan does not have a fixed monthly payment; instead it uses a number of factors in your life to determine month by month payments. These include your family size, your income level, and how much you’re supposed to pay. This plan can last up to 25 years.

Debt consolidation can be a great way to get out of debt. However finding a loan for person with bad credit can be difficult. You may find yourself wondering if you can get a debt consolidation loan with bad credit. In fact it’s not only possible, there are actually several companies that are specifically designed to handle debt consolidation loans for people with bad credit. This will help you get a loan without worrying about having bad credit.

There are two main types of debt consolidation loans that you will be looking at. The first type is a secured debt consolidation loan. A secured loan will require you to have collateral such as a home or car. You’ll most likely get a low interest rate and not have to worry about being denied because of bad credit. Your secured loan can range from 5 years to 30 years.

If you don’t want to risk your assets or you don’t have any to risk you can get an unsecured loan. Depending on where you go to get an unsecured loan you may be able to convince the lender that you will be able to pay off the loan. If you’re going to attempt to convince the lender that you can pay the loan back you’ll want to prepare several statements to take with you. You should start by creating a repayment plan that shows the time frame in which you are going to pay off the loan. You’ll also want to show the lender your annual income and maybe even a paycheck stub to reinforce your income. You should also create a document that shows your overall financial standing with your current incomes, bills, and debts. Finally you’ll also want to clarify to the lender how you got into the situation you’re in and why your payments were late on your other debts.

When you’re looking to get a bad credit debt consolidation loan you should shop around at different creditors. Some companies specialize in bad credit loans and may be able to get you a lower interest rate than other companies may be able to. You’ll want to find the best offer with the lowest interest rate before you sign into an agreement.

Remember that bad credit happens because you make your payments late or you don’t make them at all. If you’re looking for a consolidation loan with bad credit then you’ll want to ensure your payments are on time so that you don’t end up further in debt with a worse credit score. If you’re unsure if you have bad credit then you should check your credit. If it falls below 600 then you are considered to have bad credit and you should look at ways to repair your credit. Almost anyone can find a loan for debt consolidation even if you have bad credit you just have to be willing to search through various lenders to find the one that will work with you to get your debt consolidated.