How to Consolidate Debts With Bad Credit

By Valencia Higuera

  • Overview

    With a debt consolidation, you're able to simplify your finances, obtain a lower interest rate and enjoy lower monthly payments. There are several ways to achieve a debt consolidation. While banks and other lending institutions prefer applicants with good credit, you can consolidate debts with less than perfect credit. Before applying for a debt consolidation, explore all viable options. There is no wrong or right way to consolidate debts. Still, you need to choose the best option for your situation.
    How to Consolidate Debts With Bad Credit
    • Step 1

      Get a secured debt consolidation loan. Secured loans involve collateral, and are therefore easier to obtain--especially with bad credit. You can use an auto title or other personal property as collateral and obtain a debt consolidation loan. Lenders assess and determine the collateral's value.
    • Step 2

      Apply for a home equity loan. Using your home's equity to consolidate debts is risky. If you don't pay the home equity loan or line of credit, you could lose your home. On the other hand, if you have self-discipline and you can handle the monthly expense, home equity loans are useful. They feature fixed terms and lower interest rates. Thus, you're able to pay off debts sooner, and you'll enjoy lower monthly payments.

    • Step 3

      Refinance your home loan. Contact your present mortgage lender and inquire about a cash-out refinance. Despite a bad credit history, you may qualify for a mortgage refinance--especially if you've maintained an outstanding payment record with your lender. You can borrow money from your equity and use these funds to consolidate your high-interest debts.
    • Step 4

      Use a debt consolidation agency. Contact a nonprofit debt consolidation agency and seek help. These agencies work with different types of people--bad credit and good credit. And they work diligently to reduce your interest rates and lower your monthly payments. They'll merge all your outstanding debts into one account, which equals one monthly statement and one monthly payment. With fixed terms and lower rates, you can completely pay off your debts in five to seven years.
    • Skill: Moderate
    • Ingredients:
    • Home equity loan
    • Secured loan
    • Mortgage refinance
    • Debt consolidation agency

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