Bad credit consolidation loans are becoming more and more popular, and can be part of an effective strategy to help you overcome credit problems from the past. Many credit and finance agencies offer bad credit consolidation loans that are tailored specifically for individuals who are seeking help with debt elimination and credit repair. These bad credit consolidation loans can help you to get all your debts into one manageable monthly payment while starting you on the road to repairing your credit.
What are they?
The purpose of bad credit consolidation loans is to combine all of the debts that you owe into one larger debt so that you’ll only have one payment to make instead of several.
If you currently carry debt on several high interest credit cards, then by considering bad credit consolidation loans you have a chance to take out a lower interest loan for the total amount that you owe and use the money to pay off the balance of each credit card. Instead of making five payments each month at various interest rates, you’ll be making one low-rate payment to a single lender.
Bad credit consolidation loans are almost always secured loans, since the lower your credit score is then the more risk a lender has to assume when they loan you money. Lenders offset this risk by charging a higher interest rate unless there is some form of high-value collateral to guarantee repayment of the loan.
Of course, the interest rate on these loans will vary widely from one lender to the next so it is in your best interest to shop around and get quotes from several different lenders before making a decision on a loan.
How bad credit loans help you
Bad credit consolidation loans can offer additional benefits aside from simply lowering the monthly payments that you have to make. Depending upon the terms of the loan, it may also reduce your overall debt.
The lender may choose to offer you a lower interest fixed term loan to replace the variable rates on credit cards and other debts, which means that you could significantly decrease the interest charges that you’ll pay on the money you borrow. In addition, you’ve simplified your life – everything is due on one date in one payment.
Your credit score can also rise because of the loan that you take out.
Instead of your older debts continuing to damage your credit, you’ll only have the consolidation loan making regular reports to the credit bureaus. While this won’t immediately eliminate the damage that’s already been done, as time goes by your older negative reports will begin to expire and the positive reports that have been made as you make loan payments on time will cause major increases in your credit rating.