It’s not easy to obtain an online debt consolidation with bad credit, but it’s possible, particularly if you’re open to getting a secured loan or having a co-signer. But should you do it?
Let’s take a look.
What Is Debt Consolidation?
It’s basically a form of debt refinancing that entails taking out a loan to pay off several other loans or credit lines. Debt consolidation reduces the stress of juggling multiple monthly payments; you make just one monthly outlay for the term of the loan.
Ideally, you will have an interest rate that is less than what you’re paying on your current debts aggregately. Otherwise, a debt consolidation loan doesn’t make much sense.
Benefits Of Debt Consolidation
Other than streamlined finances — making a singly monthly payment to cover all debts — you will likely have fixed interest rates and a set repayment term. The latter means that, unlike with credit cards, you will make the same payment each month.
Can You Qualify?
Probably, if you put the work in. Each firm has its own loan qualification requirements. Still, all lenders consider credit scores, income, and debt-to-income ratio in deciding whether to extend credit. Keep in mind though, the key to coming out ahead when seeking online debt consolidation with bad credit is to secure a loan that has an interest rate low enough to save you money. That might be a bit tough to accomplish with bad credit.
How Can You Help Your Chances?
Know and track your credit history. The shape your credit is in largely determines whether you get a loan — and at what interest rate. Credit reports can be had for free at AnnualCreditReport.com. Review yours for discrepancies, as well as entries you don’t recognize. Contest any erroneous information you encounter.
It’s also a good idea to know your credit score. Some banks and credit unions will provide this information free for customers, check with yours. Otherwise, you can buy it at Experian.com, Equifax.com, or TransUnion.com. Once you know your credit score, you can better target your online lender options. In fact, many lenders include their credit score requirements on their websites.
Shop Before You Sign
Resist taking the first offer. Rather, spend time doing homework; sizing up and comparing loan amounts, repayment terms and processing fees from possible lenders. This is where the real work comes in.
Before committing to an online lender, check to see what your existing bank may offer. If you have a good relationship you may get a pass on some of your credit woes.
Consider A Secured Loan
If your bad credit is making it all but impossible to get such a loan, you may want to consider a secured loan. Beware, however, that these kinds of loans can add pressure to an already stressful situation. You can lose your house, vehicle, or whatever asset you put up as collateral if you default.
Line Up A Co-Signer
You may want to consider securing a loan co-signer just in case. This person, usually a relative or a good friend, must have good credit. Tread carefully here, though: should you fail to make timely loan payments, your co-signer will be on the hook for the loan.
One good thing about online lenders — beyond not having to venture out to a brick-and-mortar site — is that most only require a soft credit check, which will not ding your score.
Beyond credit reports and scores, online lenders will often consider factors such as employment history, income, and education when assessing a loan candidate. A few to consider include LendingPoint, Avant, OneMain and Upgrade.
Online lenders also usually have origination fees — processing costs — that range from zero to five percent of the loan total. So, if you do use an online lender, make sure you apply for enough to cover your debts.
With all of that in mind, should you consider online debt consolidation with bad credit? As with most things, there are pluses and minuses to doing so. However, the good news is even with a shaky credit report you still have options.