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How to Get a Loan to Pay Off Credit Card Debt with a Bad Credit

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pay off credit card debt

Would you like to learn how to pay off credit card debt with a bad credit? Paying off credit card debt with bad credit is a back-breaking process. It is, however, very much attainable with meticulous planning and hard work.

The impact of bad credit is enough to weigh one down. However, as depressing as it can be, the right debt consolidation loan can wash off all your worries. Since debt consolidation is the most common way to tackle issues of credit card debt with bad credit, this article discusses it and how you can get a loan to pay off the debt.  

What is Debt Consolidation?

Debt consolidation is a money management strategy of taking out a new loan to pay off other debts. In a case where you have multiple credit card debts, medical bills, and other unsecured personal loans, you can consolidate all debts into one by taking out a fresh loan. As your debts are rolled into one, the benefits outweigh the negatives.

However, the issue is, finding a debt consolidation loan to pay off credit card debt with bad credit is difficult. This might be as a result of not making enough money to keep up with payments, having a low credit score, or having too much debt already that getting a new one becomes impossible.

So, how do you get a loan to pay off credit card debt with bad credit? We’ll discuss that later in this article, but before that, let’s find out if a debt consolidation loan is even worth it.

Is a Debt Consolidation Loan Worth It?

The benefits of a debt consolidation loan far outweigh the drawbacks. The major drawback here is taking out a new loan even when you have existing debts to pay off.

The benefits, however, include lower interest rates, fixed payments, simplified financial processes and of course, improved credit score. Firstly, the biggest advantage of taking a debt consolidation loan is the lower interest rates you receive. This saves you money as you get to combine all the debts under a lower rate.

Secondly, rolling all the debts into one means having a fixed interest rate (which a credit card can’t offer you), and a set repayment term. With the fixed monthly payments, it becomes easier to plan your finances.

That brings us to another important benefit – simplified finances. Now that all your debts are combined into one, you won’t run into the problem of missing a repayment on a particular debt. This eventually saves you from paying extra money for late repayments.

Now that you know the amazing benefits of having your debts rolled into one, let’s look at how you can get a loan to pay off credit card debt with bad credit.

How to Get a Debt Consolidation Loan to Pay off Credit Card Debt with Bad Credit

The possibility of getting a debt consolidation loan depends heavily on your credit score. People with a fairly good score like 650 and above are considered before those with scores below 650. But there are lenders who would consider your low credit score and offer you a loan after examining other factors.

The thing is, even with bad credit, you can get a debt consolidation loan if you do the right things. Here are important steps to take if you want to get a loan to pay off your credit card debt with bad credit:  

Examine Your Credit Reports

Your low credit score could be the result of external errors such as wrong accounts, inaccurate payment reports, or credit limits. These errors can give your lenders a bad impression of you, thereby making them deny you loans or offer you loans with high interest rates.

The first thing you should do when trying to get a loan to pay off credit card debt with bad credit is to examine your credit reports. Through AnnualCreditReport.com, you can get free access to your credit reports from the top three credit reporting bureaus in the US (Experian, Equifax, and TransUnion).

If you discover an error in your credit reports, file a complaint with the credit bureau. When the errors are fixed, your credit score would surely get a boost, which might be enough to qualify you for a low-interest debt consolidation loan.

Improve Your Credit Score

Make efforts to improve your credit score in order to increase your chances of getting low-interest debt consolidation loans. You can do this by ensuring you make all payments on time and making sure to reduce your credit utilization ratio. Your credit utilization ratio can be calculated by summing up all your debts and dividing by the sum of your credit cards’ limits.

Since your credit utilization ratio and debt payment times are used to calculate your credit score, improving them would help your debt consolidation loan approval chances.

Add a co-signer

Adding a co-signer who has a good credit score or at least meets the lender’s minimum score requirement will help you get a loan faster.

Your co-signer, of course, shares equal responsibility for the loan. Therefore, if you fail to pay or miss payments, your co-signer’s credit score would be equally affected.

Not all lenders accept co-signers. So you should endeavor to find one that allows it if that’s your only chance of getting a debt consolidation loan.  

Evaluate Your Options

There are several lenders who would be willing to offer you a debt consolidation loan to pay off your credit card debt. But that doesn’t mean you should accept anyone you come across.

Evaluating your options by comparing the interest rates, payment flexibility, and other fees involved is great. It would help you avoid getting into a deeper mess. You can also check out credit unions and online lenders, as they may have loan repayment plans that suit your budget.

Consider a Secured Loan

In a situation where getting an unsecured loan becomes difficult, you should consider getting a secured loan. This is easier, even with your bad credit, as you’d be offering collateral in return.

However, because there is a high risk of losing your property in this case, ensure that you will be able to repay before taking out secured loans. The good thing about getting secured loans with collateral like home equity is that you’re guaranteed a lower interest rate.  

Read:

Where to Get a Loan to Pay off Credit Card Debt with Bad Credit

Here are the best places you can get a debt consolidation loan to pay off your bad credit card debt:

Credit Unions

Credit unions are nonprofit organizations that offer members similar services to what a retail bank does. These organizations offer lower interest rates on loans than most banks. But to access the loans, you must be a member and meet other eligibility requirements. The good thing is that, most times, credit unions do not consider your credit score when reviewing your loan application.  

Online Lenders

Online lenders offer quick access to loans. You can apply and receive the loan within a day. However, they charge higher interest rates than most banks, and that’s excluding the origination fees they charge for loan processing.

Before you take a debt consolidation loan from an online lender, ensure its interest rates aren’t higher than those of your current debts.

What Credit Score Do You Need to Get a Debt Consolidation Loan?

Most lenders require a credit score of 650 or above to approve a debt consolidation loan. However, there are others that accept credit scores below 650. The issue is that the lower your credit score, the higher the interest rates most lenders will charge you.

Does Credit Card Debt Consolidation Affect Your Credit?

At first, your credit score would drop a few points after taking a debt consolidation loan. But if you make timely payments on your new loan and never miss a payment, you’d start seeing a significant improvement in your credit score.

So, yes, a credit card debt consolidation loan affects you negatively temporarily, but with time, the benefits outweigh the negatives.

Wrapping Up

Having bad credit isn’t a death sentence; you can get off it with hard work and a proper plan. So, even though you qualify for many debt consolidation loans out there, be sure to assess them properly before making a choice. Don’t accept any loan just because it meets your immediate need of clearing your bad credit. You might end up hurting your credit more if it’s a predatory loan.

Furthermore, endeavor to address the actual cause of your getting into debt. That’s the only way to avoid a future occurrence, as debt consolidation is only a temporary fix.  Which of these methods do you think would be the easiest for you? Let’s know in the comments section.

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