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Bad credit and debt consolidation

Debt problems
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Life can throw unexpected financial challenges our way sometimes, and when you're struggling with debt it can feel like the problem is never going to be solved. But there are in fact lots of solutions available to help you get your finances back on track. 

If you're confused about what bad credit actually is, and how you can move forward once you've accumulated some bad credit on your record, then read on. We'll look at exactly what bad credit is and examine whether finding one of the best debt consolidation companies could be a great solution to get you out of a sticky financial spot.

What is bad credit?

Bad credit is a term used to describe past issues you may have had in paying your bills on time. This can be anything from missing a credit card payment, to not being able to pay a state or federal tax on time. 

Credit-reporting agencies collect all of your borrowing data and put it together into a report that can be accessed by financial institutions before they agree to lend you money. Your credit report is then summarized into a score, known as a FICO score. 

The score is worked out using the data collected about your credit history and is run through a series of algorithms to determine the score. It's a number that evolves throughout your life, changing whether your credit habits improve or involve significant action such as being declared bankrupt. 

They are updated monthly, which means you can keep an eye on them or just to check for accuracy before any other significant financial change. Credit scores run anywhere between 300 and 850, with 650 being being at the low end of a “good” credit score. Learning more about how to borrow money effectively can help you retain a good credit score, and we have tips on how to get credit more easily too.

Top debt settlement provider

National Debt Relief is our top pick of debt settlement providers. As well as providing debt settlement, their debt councilors will also help you understand your debt management options.

Bad credit often happens when you try to access multiple lines of credit in quick succession. Every time a stakeholder assesses your fiscal ability, that search leaves a 'footprint' on your file. Too many searches can suggest to a lender that you are in financial difficulty leading to a number of negative credit events in quick succession. Some financial events only need to happen once for them to have an impact on your credit score, whilst others may or may not be reported to credit bureaus. 

Once you have bad credit, it can then be difficult to borrow money, even when looking for debt consolidation (a single loan to pay all your debts). Some companies may prioritize those who have property or good credit scores. If you have poor credit then you should expect to pay a higher rate, but take into account that paying just one rate may be cheaper than paying several amounts to different lenders each month. These higher rates are used by lenders to offset the potential for them not being paid back in the long term. If you can, using one of the best credit repair services will help you keep rates low.

What is debt consolidation?

In short, debt consolidation means taking out one big loan to pay off your smaller debts. The result is that you end up paying interest on a single amount, and only have to deal with making one loan repayment a month instead of juggling your finances to meet various demands. People use debt consolidation to pay off a variety of debts, including credit cards, student loans, and other types of secured or unsecured debt. 

Debt consolidation comes in a few forms, either you can consolidate all of your credit card debt onto one new credit card. You also have the option of taking out a home equity line of credit (HELOC) with one of the best home equity loan providers, if you are a homeowner. HELOCs are loans that are secured against your property, which often means you can benefit from a lower interest rate than you would with other sources of credit. 

The risk with this option is that if you miss payments, creditors could seek to take possession of the asset against which the loan was secured. There are also federal debt consolidation options for student loans.

Debt consolidation loans are often offered to people who are struggling with their finances, and who may have bad credit. Lenders generally agree that it is worth offering a debt consolidation option to people as it improves the chances of them being able to pay back their debts. Debt consolidation loans are therefore offered by banks, credit unions, specialist companies, and nonprofits.

If debt consolidation isn't enough, you'll likely need to look at the best debt settlement companies to manage your over-borrowing.

Can you consolidate debt when you have bad credit?

It is possible to consolidate debt when you have bad credit, but you will need to shop around for a deal that is beneficial for your situation. Depending on what your credit score is, as well as your ability to utilize any credit available, it may be confusing to pick a lender. 

Once you have decided which one would be best for you (some offer soft search possibilities so you will see if you are eligible for the loan without hurting your credit score), you will then need to look at the interest rate they have offered you, plus any fees they charge, and the term of the loan (how long it will take to be paid back). 

By consolidating debt, you could find an offer that has a lower interest rate than the one you are paying on each of your individual loans. According to the Federal Reserve, average interest rates on credit cards in 2019 stand at around 15%, while debt consolidation loans have an average interest rate of 10.36%. If your debts are smaller, you could consider looking for a 0% interest rate credit card, or a company that specializes in clients with low credit scores. You could also ask your current creditors, if they offer debt consolidation options or if they work with any particular providers. 

If you're struggling to keep track of multiple payments on a monthly basis and are finding yourself merely paying off interest month on month without actually paying off any debt, then looking into consolidation could be worthwhile. Some providers even offer educational materials to help you rebuild your credit and create healthy financial habits for the future. 

The biggest thing to take home is that debt consolidation with bad credit is possible, although it may be a little more difficult to find a good deal. However, they are out there, and they could help you get your finances back on track.

National Debt Relief

National Debt Relief ranks top of our list of best debt settlement companies. Its debt advisors help you understand your options and, if you choose to use their services, we've found they can help reduce your debt.

Gina Clarke has worked in journalism for over a decade for titles such as The Daily Mail, The Sun and Forbes. She began her career in BBC radio and now specialises in subjects such as financial technology and women’s health. She has written for the Top Ten Reviews brand on a number of different and varied topics.