If you’re struggling with debt – as many consumers are – you may be looking for a way to pay off your bills and get back on track financially. Debt consolidation loans for bad credit profiles are one way to get out of debt, but you may be wondering where to look if you’ve been turned down by your bank or credit union. Before you go down the wrong road, take some time to realize there are choices for you, regardless of your credit history and financial situation. In addition, the more you understand about the differences between the many debt relief options, the more likely you are to make a smart decision and get on the road to financial freedom.
Banks and credit unions
Many people looking for debt consolidation loans with bad credit profiles contact their bank or credit union first. And while it makes sense to do business with an institution that you already know and trust, you may be disappointed if you get turned down for a loan. Banks and credit unions offer a variety of traditional loans and other products, but they typically don’t cater to debt consolidation loans for people with bad credit.
Banks and credit unions often use a risk-based pricing model, meaning the bigger the risk they think you are in terms of repaying the loan, the higher the interest rate they’ll charge you. So even if you get approved for a loan, you could end up paying more in interest and fees than someone with better credit.
So whether you are approved for a loan at a high interest rate, or you get turned down because of your credit, remember there are plenty of other options for debt consolidation loans for bad credit. Just keep doing your research and contact other lenders and debt relief companies before signing any paperwork.
“Payday” Lenders
It may sound tempting – get a cash advance on your paycheck, and pay back the money in a week or two. But read the fine print, and you’ll find that payday lenders prey on those who are looking for debt consolidation loans for people with bad credit who need cash right away. Often these consumers feel they have no other option, as either they’ve been turned down by their bank or credit union, or they don’t have time to wait days for an approval. Consumers who opt for payday loans are seduced by the ads promising quick cash with no credit checks.
So what exactly is a payday loan? It’s typically a short-term loan or cash advance intended to tide you over until your next paycheck. And what isn’t it? It’s not a way to get out of debt, stay debt-free, or develop strong money management skills to last a lifetime. Opting for payday loans often leave consumers deeper in debt and somewhat “addicted” to the cycle of getting fast cash whenever they need it. If you’re looking for debt consolidation loans for people with bad credit, you’d be smart to look elsewhere.
Debt Consolidation Lenders
Lenders operate differently from banks and credit unions; they focus on offering debt consolidation loans for people with bad credit, as well as those with average or better credit profiles. When you opt for a debt consolidation loan from this type of lender, you’re entering into an agreement for the lender to pay off your existing debts now. You’ll then have one loan – meaning just one monthly payment – due to the lender, which you’ll pay back over a period of time. Debt consolidation loans typically use a risk-based pricing model similar to banks and credit unions, so the interest rate you pay is based on your credit and ability to pay back the loan.
A reputable lender will offer several different debt consolidation loans for bad credit profiles. They understand a one-size-fits-all approach doesn’t take into account your unique financial situation. If you decide to work with a debt consolidation lender, make sure they show you multiple options, and that you understand how each works, how much you’ll pay every month, your interest rate and any fees, and how quickly you can pay off the loan.
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