In Debt Up To Your Ears? Here’s How to Get Out of Debt, Even if You Have Bad Credit.
Acquiring and trying to pay off debts can seem like a game of whack-a-mole. Just when you think you’re about to pay one off, others pop up in its place. It’s an emotionally and physically exhausting struggle.
Many people turn to debt consolidation loans; combining all of your debts into a single monthly loan to pay off instead of dividing payments to different creditors. Preferably, this loan has a lower interest rate than the interest rates on your various loans added together.
You can see if a debt consolidation loan is right for you by using NerdWallet’s debt consolidation calculator.
Sounds easy enough, but like other types of loans, it may prove challenging to get a debt consolidation loan in the first place if you have poor credit (credit score below 670).
Fortunately, it is possible if you know some tips and tricks.
How to Get a Debt Consolidation Loan With Bad Credit
Credit Unions are nonprofit financial institutions with more forgiving rates and terms for its members. Most federal credit unions don’t have annual percentage rates (APR) greater than 15 percent, and offer debt consolidation loans with low rates, minimal fees and no credit score requirements.
Different credit unions have different stipulations for membership. These qualifications may depend on your occupation, where you live, or affiliation with a certain organization. First Tech Federal Credit Union, for example, serves employees and their relatives of leading technology companies.
Online lenders are fast and accessible. With a few swipes or clicks you could have your loan within a few days. But it will cost you since they could have an APR up to 36 percent, according to NerdWallet. Additionally, they may charge origination fees and set minimum credit score or income limits.
Beware of scams if you go with an online lender. “Consumers should be cautious if they are dealing with a lender who is cagey about clearly discussing the costs and fees associated with the loan,” says Evan Zullow, an attorney with the Federal Trade Commission’s Bureau of Consumer Protection. Use the National Association of Attorneys General website to check if you’re talking to a legitimate company.
Alternatives to Debt Consolidation Loans
Debt consolidation loans can be a helpful financial tool, but they’re only one option. First and foremost, take a hard look at your credit score. In a study by the Federal Trade Commission, 26 percent of participants found at least one harmful error on their credit report. Use AnnualCreditReport.com for free once a year to identify hidden errors. Even a small improvement could mean the difference between qualifying for a crucial loan or not.
Nonprofit credit counseling agencies will work with you to come up with a debt management plan. These plans are designed to reduce interest rates and get rid of debt faster. If you have credit card debt and can stick to a payment plan for at least three years, look up agencies belonging to the National Foundation for Credit Counseling.
Lastly, if you need a loan desperately and quickly, look for lenders who allow co-signers. Remember that your co-signer’s credit score must meet the lender’s loan terms.
