Bad Credit Record and Debt Consolidation

If you have built up numerous credit troubles, you have the alternative to merge and combine all your existing loans, into one convenient loan. This is known as Debt consolidation, a loan payback plan that has become very popular in recent times. It merely means that you will have to apply for one debt in place of several others. This is done so that you can get a lesser interest rate and pay at a single fixed rate of interest. Occasionally, it is just done for the ease of paying off only a single debt.

Debt consolidation can be made either in secure or unsecured format. In case of secured debt, you can take out a vast sum of loan, which is not usually obtainable if you do not have collateral. Moreover, having collateral also reduces the rate of interest, making it relatively low.

Unsecured loans, otherwise, offer a restricted amount of loan, for a short time span. The rate of interest in this case is also lofty, and should be taken only when you do not want to put your property as collateral, or when you don't have any.

Debt consolidation for people with bad credit

The option of debt consolidation can also be obtained when you have an awful credit record. Nevertheless, this means that your bad credit lender who offers you the loan for debt consolidation is shouldering extra risk by reimbursing all your extra loans and defaults. You already have a terrible credit record, and so, no one else is prepared to give you a loan.

This typically means that you will be anxious to get the loan, and be prepared to pay a lofty amount of interest - often up to 20% - 22%! Though your monthly payment is lower than what you used to pay, you end up paying much more than what you should have.

This is a huge gain for the bad debt consolidator. At the same time, the collateral guarantees the lender the return of his investment. He can effortlessly get the money for foreclosing the property.

Good debt consolidation options

A home equity loan is comparatively a low cost investment. You can also undertake a "cash-out" refinancing of your home. However, as this is a "one time" only alternative as the total interest over the years can add up to become enormous. Refinancing your automobile is also a good debt consolidation option, if your debt is smaller than the cost of your automobile.

A good debt consolidation plan can be very helpful, as it helps you to shell out your loan only once a month. You will not have to pay your late fees anymore. Moreover, some of the creditors may probably "re-age" your account and perk up your credit rating.