It is amazing how easily debts can mount, growing to such a level that the specter of bankruptcy begins to loom on the horizon. But the good news is that there are ways to ease the burden of debt in a constructive manner without visiting a bankruptcy court. It is possible to secure a debt consolidation loan, with bad credit not the hurdle that many think.
Everyone with financial problems wants to find the most manageable and cost-effective way of clearing existing debts. But the task can be complicated by very low credit ratings, which can affect the chance to secure the funds that can make a real impact.
But thankfully, a debt consolidation loan exists purely for the purpose of clearing debts, so the issue of credit scores is much less significant. But to be effective, the right terms need to be secured, and that is why there are certain factors that need to be considered before agreeing any loan deal.
Why Consolidation Works
Before looking at specific terms when seeking a debt consolidation loan with bad credit, it is important to understand how a consolidation loan actually works. Basically, it is a single loan that replaces a number of individual loans by buying out the remaining balances of each.
The key advantage of this option is that the monthly repayments fall dramatically, thus easing the financial pressure. This is accomplished by the fact that a single interest rate on the principal sum costs less than 4 or 5 different rates paid through the individual loans.
By clearing existing debts in one go, the credit score is also automatically improved, thus helping to improve your credit reputation too. But securing the right terms is essential for the debt consolidation loan to be effective.
The Terms To Seek
The key terms to look for when getting a debt consolidation loan with bad credit relate to keeping the size of the monthly repayments as low as possible. This means that the lifetime of the loan needs to be as long as possible, thus reducing the share of the principal repaid in each month.
The interest rate is important too, of course, but the impact that it makes is less significant. With 5 individual loans, the interest rates might vary between 4% and 7%, depending on the individual loan terms. But replacing them with a single rate of 5% means money is saved each month.
If the term is long enough, then this is actually the cheapest way of clearing existing debts. For example, repaying a $75,000 debt consolidation loan over 10 years may cost $675 per month. But over 20 years, it would cost as $330. Terms of 30 years are available.
Finding the Best Deal
So, where is the best place to apply for a debt consolidation loan with bad credit? It will come as no surprise that the Internet is the best resource for finding the best loan deals, as online lenders consistently offer better terms to bad credit borrowers.
Using a comparison site when searching online is an effective way of finding deals that offer specific terms that the applicant might want. But it is also important that any prospective lender is checked out properly. After all, clearing existing debts efficiently is the idea, and an unscrupulous lender can ruin that.
So, spend some time checking out the range of debt consolidation loan offers, and find out the lender reputation on the Better Business Bureau website. Only do business with an A+ grade lender.