Debt consolidation help is designed for people who have a bad credit history. So what is bad credit history? People with a credit score of less than 500 out of 800 are said to have an adverse credit score. Their credit reports would typically show late payments, defaults, County Court Judgments (CCJs), and at times, even bankruptcy. Such people are eligible for bad credit consolidation loans.
Bad credit debt consolidation loan entails the bundling up of all the arrears into one debt. Take the example of a person with outstanding balances on three credit cards, one at 12%, the second at 13.5% and the third at 17%. Let us assume that he takes a loan from a finance agency, for instance at 9%, and pays off the balances on the three credit cards. Consequently, instead of paying three creditors individually, an amount that would be higher in value when added, he would have to pay the agency a smaller amount every month. Thus, he would benefit from getting debt consolidation help from the agency.
The question arises as to why anyone would give a person with a poor credit history any loan? Certain finance agencies specialize in lending to such people. The lower the credit score of a person, the more is the risk undertaken by the finance agency when it gives the loan. Therefore, the agency will charge a higher interest rate for the consolidation loan.
For consolidating the bad credit debt, either a secured or an unsecured loan can be availed. A loan secured against the property of the borrower enables him to avail of a larger loan at lower interest rates and comparatively easier repayment conditions. An unsecured loan could be taken for smaller debts of shorter duration, but at a relatively higher interest rate.
The interest rate charged would vary from one financial institution to another; so, one should do thorough research before selecting a lender. There is a perception that people with a bad credit history prefer free debt consolidation help from non-profit organizations. However, some may prefer to apply for bad credit loan online as the process is faster and chances of getting approval are brighter. They could also get debt help advice online. The flip side is that a number of organizations try to take advantage of the situation, so one should be cautious and see if the lender is legitimate and is offering a fair deal.
Effect On Credit Score
As the borrower pays off multiple creditors, his credit score improves. In the example above, the person’s credit report would show three paid credit accounts. This would reflect positively on his credit rating.
One can conclude that consolidating bad credit debt with the debt consolidation help is an effective way to reduce one’s debts and improve the credit rating.