The pressure created through quickly mounting debts can cause real chaos. It does not take long for creditors to begin to demand payment, and unless something is done to deal with the problem, bankruptcy becomes a real possibility. So what is the solution? Well, it is not difficult to secure a debt consolidation loan with bad credit, and to clear the troublesome debts in one go.
The challenge of clearing existing debts, and lifting the weight that can cripple even the hardest working of us, is no light matter. It usually requires great discipline to take control of debts, making it extremely difficult to achieve independently.
A precisely tailored consolidation plan can make a real impact, and a debt consolidation loan provides the means to restructure the money owed into something that is manageable to handle. But how is this possible, and what are the terms that should be sought?
How Consolidation Is The Answer
Applying for a debt consolidation loan with bad credit is a good decision, but it may seem strange that a new loan can actually make your debt situation better. Knowing how consolidation works is the best way to ascertain the effectiveness of the strategy. In its simplest form, consolidation replaces multiple debts with a single loan, thereby removing the complexity and lessening the burden.
The biggest problem with multiple loans and debts is that they each have their own terms. So, 5 loans will have 5 different interest rates and 5 different repayment dates. That means the amount of interest is higher than it needs to be, but clearing existing debts with a single loan means a single interest rate is paid.
And even the principal if the debt consolidation loan is $50,000 to buy out the individual loans, the terms can be much better than those original debts combined, making it much more affordable than the original deals.
What Terms Should Be Sought
Of course, applying for a debt consolidation loan with bad credit is one thing, but securing terms that make it worthwhile is another. By and large, lenders offering consolidation packages are willing to offer very flexible terms, but the key issues are the interest rate and the loan term.
The interest rate can be quite low, but what is most important is that the rate is significantly lower than the average rate charged on the existing loans. That way, clearing existing debts and replacing them with a new loan can be accomplished while making savings – as much as 50% on monthly repayments.
Crucially, however, it is the size of the loan principal that makes the biggest impact, and this is where the loan term comes in. With 5 loans to pay each month, the total sum could easily reach $1,500, but even a $50,000 debt consolidation loan repaid over 10 years could be half that amount. The longer the lifetime of the loan is, the lower the required monthly repayment.
Considering a Consolidation Company
When it comes to applying for a debt consolidation loan with bad credit, there are two chief options. The first is to approach a lender (traditional or online) and apply for a loan large enough to clear existing debts. While securing a large loan might be difficult usually, if the purpose is known to be debt consolidation, approval is more likely.
However, there is no guarantee of approval and this means that the problems might only persist. Another option is to approach a debt consolidation company, professional service providers who will buy out your debt and then receive monthly repayments directly.
Of course, this option is a little more expensive as there are fees to pay on top of interest on the debt consolidation loan. Still, the cost is manageable, and progress in lifting the debt is certain to be made.