Dealing with debt payments every month seems strenuous. It is because you must plan the payments before the due date. You check whether you can repay the pending dues now. It may mean cutting off on your most anticipated holiday, gadget, and saving towards the goal. However, things quickly spiral out of hand with multiple debts to cater to.
It further affects one’s ability to hit new life goals and leads to bad credit. Here, you can consider debt repayment plans or temporary relief options. However, qualifying for that is a little difficult. So, what can you do here? You can check on a debt consolidation loan.
What is a debt consolidation loan for bad credit?
Debt consolidation loans for bad credit help one with pending payments, penalties, and CCJ pay multiple debts at once. Instead of dealing with multiple creditors, a borrower pays only to a loan provider. It limits the liabilities and the stress of managing different debts separately. A debt consolidation loan can be secured or unsecured, depending on the needs. The latter one is for one who has no other way to tackle the pending dues.
A debt consolidation loan is beneficial for your finances. It helps you fetch reduced interest rates, pay less monthly and overall. Precisely, it promotes savings.
6 Steps to get a debt consolidation loan with a bad credit score
Understanding the loan company’s concern is important here. Check what upsets them the most about a borrower’s profile. It is generally the low credit score, pending payments, late payments, collections, and bankruptcies. While you cannot erase past mistakes, you can surely prove your worth to repay. Here are some steps to get a debt consolidation loan with bad credit :
- Step 1- Review the debts to consolidate
The first step is to understand the best debts to pay off first. Prioritise paying the costly ones with high interest rates first. It could be payday loans, credit cards, student loans, etc. Calculate the interest, pending amount, and penalties to pay on the loan.
- Step 2- Check the loan’s approximate costs
You can pre-qualify or use the loan calculator to determine the approximate costs. It helps you know how much you are expected to pay in total. Analyse whether it is less than what you pay currently. Additionally, don’t forget about the hidden and additional costs.
Yes, a debt consolidation loan is all about reducing the costs. If it does, check cheap debt consolidation loans for bad credit from a direct lender now. It may also boost your credit score. Alternatively, if it does not help you save good money, skip it.
- Step 3- Reduce debt-to-income ratio
Debt-to-income ratio is the ratio of your income to the debts in your credit report. The higher the debts, the higher the DTI. Aim for no more than 40% of debt-to-income ratio. You can reduce that by paying off some debts, not applying for more credit cards, etc. Alternatively, try your best to reduce unnecessary expenses.
You can calculate the debt-to-income ratio by using a formula:
Debt-to-income ratio = Total monthly debts ÷ Total Monthly Income× 100
If your monthly debts cost £18000 and your income is £25000, your DTI is 72%. That’s indeed high. Here, if your debts reduce to £10000 a month, your DTI will be 44%. That’s far better than the previous one. You should aim to increase your income and reduce your monthly expenses. It will help you get a balanced DTI.
- Step 4- Shop around for bad credit providers
Once you know the approximate amount you may get and the debts to pay, check with the best UK direct lenders online. Stick by the bad credit ones specifically. You have high chances of getting a loan there. Moreover, you may even fetch one at better interest rates than a traditional one. Fetch the one with the lowest actual, not the representative APR.
- Step 5- Improve your odds of approval
Getting a debt consolidation loan for bad credit is challenging. You can improve the chances by –
- Getting a co-signer
- Getting a guarantor
- Considering a secured loan
In either case, you may get the loan quickly and at low interest rates.
- Step 7- Apply and get the cash
Sign the loan agreement with the one quote that meets your affordability. Check all the details mentioned, the debts and the amounts to consolidate. If it’s alright, check the money you save or the total you must pay. If it seems within budget, consent to it. You get the promised cash after the consent quickly in your bank account. Later, you must repay the dues according to this new agreement only.
Frequently Asked Questions.
So, this is how you can consolidate debts for a bad credit score. Now, let’s check on some common queries regarding debt consolidation.
- What is a debt consolidation loan?
Debt consolidation loans help you merge different pending payments into one instalment every month. It helps you save money on interest rates, total amount and the monthly payments.
- Which debts can be consolidated?
You can consolidate any pending debt that you find hard to pay every month. It could be particularly high-interest payments like payday loans, no guarantor loans, credit cards, etc. It is especially helpful for long-term loans like student loans, as you can save on interest payments by paying early.
- Am I eligible for a debt consolidation loan?
You may get a debt consolidation loan if you meet the basic criteria. It is that you should be a regular citizen of the country at 18 years or above. You must have a valid citizenship ID, a bank account, an email ID and a contact number to apply. Lastly, you should be able to afford the new payment structure given your current financial status. For that, you must reveal a strong income exceeding £10000/month.
- Can a debt consolidation loan help save money?
Yes, you can save money by consolidating debts the right way. Always compare the new payments with the old ones to check the money you save. If you have been paying high interest and monthly payments for many years on the loan, a debt consolidation may help. It helps you cut down on interest and other loan costs.
- Are there any fees or charges on the loan?
We only charge the basic fees associated with the debt consolidation loan. It could be the loan arrangement fee, administrative charges, and interest. You pay it all through monthly payments, not separately. Moreover, skipping loan payments may be liable for missed payment penalties.
Bottom line
Thus, you may qualify for a debt consolidation loan for bad credit by following the above steps. Always improve your credit history and pay some dues before applying. Compare your options and choose the one with the lowest APR. Make regular payments on the loan to repay multiple dues at once.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
