Have Poor Credit? Need To Consolidate Credit Card Debt?
If having too much debt has ruined your credit score, then you don’t need to worry as consolidating that debt into one sole loan can be your way out. When you transfer various debt balances in one single loan, you actually make things easier for yourself when it comes to managing the debt and securing a much lower interest rate. If you have made debt consolidation an integral part of an overall commitment to bring down the debt, it can prove to be an important ingredient that helps improve your credit rating.
How to consolidate credit card debt with bad credit?
As for the consolidation loan, pretty much like any loan, you need a loan application and it is not mandatory that everyone gets qualified. If you have failed to pay your debts and it has resulted in bad credit, debt consolidation can get a little complicated and expensive as well. Follow the below-discussed steps to enable Credit Card Debt Consolidation for people with poor credit and make improvements in your fiscal status
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Know your credit score –
Start the process by having in-depth knowledge of your credit score as the process of loan consolidation depends on it. You can have a free copy, of your credit score, from each of the main credit bureaus – TransUnion, Equifax, and Experian once in a year. Take your own sweet time to review it, and if you found any error or something that you didn’t understood, you can always contact the the aforementioned credit bureaus. In addition, you should also ensure that you have –
- Made timely payments every time.
- Paid some amount of your debt. You can start off by paying a little amount so that it won’t seem overwhelming to make the payment.
- Resisted yourself from opening new accounts, it will only take you deeper into the debt.
Get familiar with the concept of debt consolidation
- Most of the people have this false illusion that the debt consolidation will help in getting rid of the debt. Well in reality, this is not the case, it actually consolidates your multiple accounts into one.
- The total payment, on a monthly basis, might come down, but at the same time the total amount of interest paid and the time period, required to repay the debt, will also increase.
- Once the credit card accounts have paid off, make sure you have given a thought of closing them to avoid the temptation of having new charges. If you have kept the paid-off accounts open post consolidation, it can put you at a risk of taking more debt in the future.
Use Home Equity –
You can also use equity of your homes as the basis for consolidation loans, but it has its pros and cons. One of the various advantages of doing this is that it helps in bringing down your borrowing costs considerably. But, the disadvantage is that just like any mortgage, the home equity loan will be secured by your home. So, in any case you are not able to make the payments for your loans, the lender will foreclose on your home. This is the reason that most of the people prefer unsecured loans, despite of the fact that they have high interest costs, for the consolidation loans.
Shop around –
No matter what method you choose for debt consolidation, make sure that you have looked for best loan terms available as well. Minimum rate of interest for the size and type of loan you decide for yourself is one thing. Another key consideration is the payment, on a monthly basis, that is within your budget and helps you to pay off the debt within a reasonable period of time.
Also Read: Know Everything About Secured Credit Cards
Stop taking more debt –
If we talk about debt consolidation loans, they generally take away more of the burden, but this will only work when you improve your credit and stop taking on new debt. For instance, a debt consolidation loan might prove useful in paying off your credit card balances. Having those balances zeroed out, you might be tempted to use those credit limits once again. But, this will double your debt, and you still will be liable to make the payments for the consolidation loan, plus you will be having fresh payments on your new credit card debt. This will not only increase your debt burden, but it will also put your house at risk in case you are not able to make the payments on the home equity loan.
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Strive towards qualification –
If you are one of those individuals who is starting out with a bad credit then you don’t have much options. If you really want to have more options, it is important that you have improved your credit score. As the reasons for poor score varies, you should first try to figure out all those reasons that led to the bad score and then addressing them.
Two of the influential elements in a credit score are your payment history and the credit utilization ratio. There are strong chances that the credit utilization will be on a higher side if you are looking for debt consolidation, so it is imperative that you have focused mainly on making timely payments and at the same time avoiding new debt.
Have a word with credit counseling agencies –
If you are going through bad credit, then all the non-profit consumer credit counseling agencies can prove helpful in offering alternatives to the debt consolidation loans. Such agencies will help you in negotiating better interest rates with your current creditors or find an effective solution for paying off your debts.
Most of the people are of the opinion that a non-profit credit counseling agency is the best choice as they are non-profit agency and they are so kind to help you out with your debts. But, it is important that you are aware of the difference between the non-profit and for-profit debt relief company. But, the main difference that separates non-profit agency from a for-profit agency is that the non-profit ones don’t pay any tax on the profits that they generate. This means that they might charge you for the services that they provide. Make sure you have done extensive research work in finding a company having impressive record success in getting the people out of the debt.
Bring down the credit utilization –
You should divide your total credit balances with the total credit limits in order to have credit utilization ratio, it is an important element in your credit scores. Generally, the more available credit you use month to month, the worse your score will be. Following are the ways in which you can improve your credit score –
- Pay off your debt – It can be quite hard to keep your balances low, but on the positive side it can prove quite handy in making significant improvements in your credit standing. If you have the permission of your issuer, then paying more than once in a month will be great.
- Have a higher credit limit – With a higher limit, your utilization rate will come down considerably, but make sure that you are not spending more. If your card issuer offers raising your limit, then make sure you take it, unless you know that it will make you to spend more. In the case where your issuer has not offered, you can ask him for a higher limit. This may lead to a credit inquiry, however, it may harm your score, therefore it is advisable that you use this option carefully.
Credit Card Debt Consolidation Tips You Should Consider
Handle credit applications smartly –
Your credit scores is dependent on few things about new credit. When you apply for new credit, it can lead to credit inquiry and can get ugly. But, having more of it, especially varied types, can be good. So, you are going to adjust all these rules?
- When you have balances on various accounts actually have a negative effect on your credit, but on the other hand, having available credit is considered positive. Don’t even think about canceling your old account, but having said that, don’t apply for the new ones either.
- If you are using a personal loan for paying off your debt, then be informed that it will only add on a new type of credit to the report – installment instead of revolving credit – which is positive, as long as you are diligent regarding making the payments. In addition, you may also have a better interest rate as compared to what you have on your credit card debt.
- If you have plans to apply for an auto or a mortgage loan, then make sure that it is for shorter duration. This will help in the prevention of multiple inquiries that get posted on your credit reports.
Avoid missed payments –
Make sure that you know that the payment history has great significance when it comes to credit score, therefore make sure that you make payments for your debt. If you have any query regarding your payments, you can contact your credit counseling agency about the possibility of extending your due date. Make sure you avoid borrowing from high-interest lenders, as they might, eventually, compound your debt issues instead of resolving them.
So, if you have a bad credit, it’s not the end of the world, make sure you have considered doing above-mentioned things to rebuild your credit.