Consolidating Debts With Bad Credit: Can It Be Done?

by Redeeming Riches on March 1, 2012

(Author’s Bio: Valerie Anne Reyes is an in-house writer from Franklin Debt Relief, a company specializing in programs for people with high credit card debt.)

The problem of credit card debt is a common one shared by millions of people. This problem is one that some people have managed to endure without seeing much impact to their credit scores. Carrying high balances on unsecured credit card accounts can lower credit scores, but provided payments on all accounts are made on time, some consumers may be struggling with credit card debt and still have decent credit scores. For others, however, the struggle with credit card debt has had a negative impact on credit scores. High account balances coupled with even a few late payments can result in significantly lowered credit scores.

Debt Consolidation as a Solution

Debt consolidation is a feasible solution that may struggling with credit card debt pursue. With debt consolidation credit cards are paid off and their balances are rolled into a single loan. Managing payments on debts is simplified because there is just one debt payment to make each month. Further, a consolidation loan generally has a fixed term and a lower interest rate, so monthly payments are lower and debt is repaid more quickly.

Credit Ratings Do Matter

Many credit card consolidation loans do take into account an individual’s credit rating. It may be difficult to walk into a local bank and obtain an unsecured loan for debt consolidation if an individual has low credit scores. Yet obtaining a consolidation loan is not impossible.

There are several options that an individual may consider for obtaining such a loan, and these include:

· Working with a credit counseling agency that specializes in unique debt situations

· Applying for a secured loan, such as a home equity loan

· Obtaining a loan on a whole life insurance policy or a 401(k) retirement account

Consumers should keep in mind that some options, such as a home equity loan, may be more available to some individuals than to others. While a bank may be more likely to lend a consumer who has lower credit scores money with a secured loan rather than an unsecured loan, those with very low credit scores may not be approved for this type of loan. It is also possible for an individual to be approved for a consolidation loan at a lower loan amount than was requested. A lower loan amount may not provide full relief, but it can offer some benefits to a consumer by lowering payments and making repayment of a portion of the debt easier.

When Consumers Cannot Get a Consolidation Loan

Some consumers with lower credit scores may be able to obtain a consolidation loan with some effort. These individuals may receive a few negative responses to a loan request, but eventually may be approved for the loan they need. Others, however, simply have credit scores that are too low, and these are individuals who may not get approved for a consolidation loan. Learning that consolidating debts is not an option can feel like a major financial setback, but there may be other options available to help reduce debts and make payments manageable. For instance, debt negotiations and settlement often provides relief to those who are struggling financially. Consolidation as well as settlement is two options that should be explored fully before bankruptcy is considered. Bankruptcy can have significant, long-term effects on an individual’s credit rating and financial future.

Many individuals can enjoy significant benefits by pursuing credit card debt consolidation loans. These loans are not available to everyone, but often even those with lower credit scores can be approved for a consolidation loan with effort. If an individual with very low credit scores are not approved, other options for debt relief can be explored.

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