Bad Credit Debt Help & Debt Consolidation Loan
Debt consolidation loans to clear up bad credit
The concept of consolidating your debt to maximize your ability to pay it down more quickly is standard in the debt industry. After all, it’s basic math that obtaining a debt consolidation loan will make your monthly payment more effective so you can get out of debt faster. When you are trying to juggle your debts it’s hard to know if you will be approved for a consolidation loan with bad credit, or even if it’s the right thing for your unique situation.
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Signs of bad credit
Many people instinctively know when they have bad credit and may be leery about approaching a bank to get debt help. Generally, if you are getting frequent collection calls, if you have a history of missed or late payments, if you are struggling to make payments then chances are your credit score is low.
Debt consolidation is a good first step to gaining control of your finances. Before you start the loan application process there are some things you should first consider.
Preparing for your Application
Start by gathering as much information as you can about your debt. You need to make sure that you are including everything that you owe in your debt consolidation. Make a list of your debts including who holds the debt, your account number, and the amount owing. It may also be a good idea to complete a credit check to make sure there aren’t any other debts that are outstanding of which you are not aware.
Next, you need to understand how much you can realistically afford. Banks and lenders do not always take the time to consider whether the loan payment is affordable. Make sure that after paying your basic living expenses, and allowing for some money to be put away for annual or extra expenses, you know how much you can afford to pay on your consolidation loan monthly.
If you need help understanding how to manage your money or how to set up a budget then consider seeking the assistance of a debt counsellor or budget counsellor. They can help you address any issues that you have with money management skills to be sure that your consolidation is successful.
Consolidation loan basics
There are several types of lending institutions available that would offer a debt consolidation loan as part of their product line. Not every institution will offer a loan that meets your needs.
Always start with your bank as they can see your financial history and have a record of your income coming into your account each month. Generally, major banks offer the most competitive interest rates even if you have bad credit. The banks will look at your debt ratio, your income level and your credit score when considering your loan application. Sometimes, even with a poor credit score you may still qualify if you meet the other lending criteria.
If your credit score is a factor then you may need to consider a co-signor. Asking a friend or family member to co-sign on a loan is a difficult decision as it does ask them to take on responsibility for your debt if you default on your payments. This may be the best way for you to get approval on a loan that fits your budget so it might be worth considering.
If your bank will not approve your loan, then you may consider other companies that have more liberal lending policies. If you do consider these types of lenders it is very important that you look carefully at the details of the loan to make sure it is a good solution for you. Getting the wrong consolidation loan can make your financial situation worse.
What to watch out for
Consolidation loans are a great option to get back on track financially but they can also have the opposite effect. Sometimes people are so quick to consolidate their debt they don’t look at the details of the loan to see the big picture.
Consolidation loans do not lower the amount that you owe your creditors- they just put the debt in a prettier package with a lower interest rate. If your household could not afford to carry that much debt, putting it into a loan may not solve the problem. The cost per month may be less than you are paying now but it still may be too much for the household to afford. Look carefully at the monthly payment to make sure it is going to work for your budget.
A consolidation loan will generally have an interest rate that is less than a credit card but that is not always the case. Lenders that specialize in hard to approve loans often charge an interest rate that is well into the double digits. This makes the amount of the debt almost double the principle amount and you end up paying much more for the debt over time. The monthly payment is important but don’t lose sight of the overall cost of borrowing when deciding to accept the loan.
And most importantly, a consolidation loan is supposed to help you with your cash flow while getting you out of debt in a fixed time frame. Many individuals will take on a consolidation loan with too much focus on shortening the time they will be debt free instead of looking at whether the loan payment is really affordable. If the consolidation loan is too expensive per month then credit card debt tends to creep up over the loan period. This is because the household is putting all their discretionary income into maintaining that loan payment and there is no money left to put away for things like car repairs or household maintenance. As a result when those things come up the only option is to start the cycle of debt all over again by putting the expense on a credit card.
What to do when a consolidation loan isn’t the answer
After meeting with the banks you may decide that a consolidation loan isn’t for you. The next option to consider is a consumer proposal. A consumer proposal is meant for those individuals that can afford to pay something each month to their creditors but can’t afford the debt payments with the interest and minimum requirements. It is also a good idea for people who do not get approved for a consolidation loan or realize that the consolidation loan offered will be too expensive to maintain.
Consumer proposals allow you to make one interest free monthly payment that you can afford based on your budget. They can often discount the overall principle amount of the debt and will have you debt free in five years or less. A licensed trustee can help you determine if a consumer proposal is right for you. You can book your free and no-obligation consultation with a trustee near you today.
Debt Consolidation Support and Your Options
Before you settle for a bad credit debt consolidation loan, you must know all your options.
After all, debt is a serious issue and you must be sure you’re making the right decision before signing off any paperwork.
Options for Debt Consolidation in Canada
There are plenty of banks that offer debt consolidation programs with differing interest rates.
The annual percentage rates (APR) can vary from 3% to 46.96% depending on the bank, your credit score, and the collateral you offer.
If you apply for debt consolidation with bad credit, chances are your interest rate will skyrocket.
So, you need to be careful and look for the best debt consolidation loans available: research each bank’s offer carefully and only sign the paperwork when you’re 100% sure it’ll fit your budget.
After all, the goal of debt consolidation loans is for you to bundle up all your existing debts (student debt, credit debt, etc) into a single easy-to-pay package.
The main benefit is that you pay just a single monthly debt instead of many, and you don’t have to deal with differing interest rates.
But, you need to calculate your budget. Will you have money every month to pay the consolidated debt? If not, you risk snowballing it even further.
That’s why you should ask for support to make sure you have the finances to pay for your debt consolidation loan.
Support from a Bankruptcy Trustee
A bankruptcy trustee (also known as a licensed insolvency trustee) can provide you free advice on your debt and help you take your next step.
Trustees are certified by a state board and are experts in helping Canadians solve their debt safely without any fees or setbacks.