Have you found yourself with too much debt and no idea how to pay it off? Maybe you’re currently in this situation because of a job loss, a bad business deal, too many loans, or too much credit card debt. Whatever the case may be there is always a solution, even for the most dire of circumstances. Before you consider a consumer proposal or even bankruptcy you need to think about debt consolidation.
What Is A Debt Consolidation Loan?
Debt consolidation is when you consolidate or combine all your debts under one larger loan so that you only have to make one easy-to-handle monthly payment. Typically, the main goal is to get a lower interest rate so you can pay off your debts quicker and save on interest.
You can apply for a specialized debt consolidation loan that is specifically meant to help those who need to work on paying down their debt.
Can You Get A Debt Consolidation Loan With Bad Credit?
Yes, it’s possible to get a debt consolidation loan even with a bad credit score.
Your best bet is to work with an alternative online lender, as their lending requirements are not as tough as traditional banks. Alternative lenders are not as strictly regulated by the federal government as conventional financial institutions, which means they have the freedom to set their loan criteria. This makes it easier for bad credit borrowers to get approved for a debt consolidation loan.
Instead of focusing on your credit score, alternative lenders will look at other factors, such as your employment, income, and assets. They may also look at alternative credit data that is not included on your credit report, such as rent payments, utility bill payments, and bank account transactions.
Why Your Income May Be More Important Than Your Credit?
Many alternative lenders place more importance on your income and overall finances than your credit score. There are a couple of reasons for this:
Each Lender Has Specific Credit Score Requirements
It’s important to understand that different lenders have different standards when it comes to credit scores. What some lenders may consider “good” credit may be viewed as only “fair” or even “poor” to others. That means you may be turned down for a loan with one creditor, but may be successful with another, both with the same credit score.
In other words, there’s no specific credit score that will assure you loan approval. Depending on the lender you apply with, you must meet their requirements to get approved for a debt consolidation loan.
Alternative Lenders Assess Borrowers Differently
Instead of enforcing strict minimum credit score thresholds, alternative lenders place more emphasis on your income to ensure that you have the financial capability to keep up with your loan payments.
Alternative lenders just want to make sure that you can afford your loan. A strong income will be a good indicator that you have the means to cover your payments.
Where Can You Get A Debt Consolidation Loan With Bad Credit?
- Up to $50,000
- Prime to 46.96%
- 3-60 months
- $1,000 - $10,000
- 19.69% - 46.9%
- Up to $35,000
- 9.99% - 46.96%
- 6 - 60 Months
- Up to $50,000
- 19.99% - 39.99%
- 6 - 120
- $1,500 – $10,000
- Varies by province
- Up to $3,500
- 9.9% - 47.72%
- $500 - $100,000
- 9.99% - 46.96%
- $500 - $1000+
- 28% to 32%
- 3 Months
- No Cost!
- Up to $250
- No Cost!
- $1,000 - $25,000
- 7.5% - 31.5%
- 36 - 60 months
How To Get A Debt Consolidation Loan With Bad Credit
If you want to consolidate your debts, follow these steps to secure a debt consolidation loan with bad credit:
Step 1: Find Out What Your Credit Score Is
Knowing what your credit score is will give you an idea of what you can qualify for. It’s always a good idea to check your credit score before applying for a loan. You can do this for free using Loans Canada’s CompareHub tool.
Step 2: Compare Lenders And Get Pre-Qualified
Find lenders that work with borrowers with your type of credit score by using an online loan aggregator. Simply plug in your credit score, loan amount desired, and income, and you’ll be provided with a list of lenders and loan offers you pre-qualify for. From there, you can compare each offer and determine which lender you’d like to apply for a loan with.
Getting pre-qualified for a loan will help determine your eligibility for a debt consolidation loan and the rate and terms you may be offered. Moreover, loan pre-qualification only involves a soft credit check, which won’t affect your credit score.
Step 3: Apply For A Loan
When you’re ready to apply for a debt consolidation loan, the lender will conduct a “hard” credit check, which will temporarily affect your credit score. In addition to completing a loan application form, you will also need to provide the lender with some documents, such as bank statements, employment letters, tax returns, and photo IDs.
Step 5: Get Approved And Funded
Once you’re approved, you’ll receive a lump sum payment, which you can then use to consolidate your debt, such as credit cards or car payments.
Pros And Cons Of Debt Consolidation Loans
If you’re currently considering debt consolidation and feel as though it’s the right option for you here are a few of the advantages you can look forward to:
|– One monthly payment
– Easier to manage your debt
– Lower interest rate
– Pay down debt quicker
– Work toward improving credit with on-time payments
|– Fees could be higher than expected
– Poor credit can affect approval and interest rates
How To Increase Your Chances Of Qualifying For Debt Consolidation Loan With Bad Credit?
As mentioned, many lenders accept borrowers with bad credit scores. However, there are a few things you can do to increase your chances of qualifying.
Pay Off Some Debts
As mentioned, many lenders that offer bad credit debt consolidation loans want to know that you have enough income to make your loan payments. As such, paying off 1 or 2 debts before applying can help your chances of qualifying.
Get A Co-Signer
You have the option to add a co-signer to your loan agreement when you apply for a debt consolidation loan. A co-signer is someone with good credit who is willing to take over your loan payments in case you fail to make them yourself at some point during the loan term.
The addition of a co-signer reduces the lender’s risk, which will boost your chances of loan approval and keep your interest rate low. A co-signer may also help if your income is a bit weak. The lender will consider the cosigner’s income, which may help you to borrow a higher amount.
Choose A Lender Whose Minimum Requirements You Meet
If your credit is fair to good, then a debt consolidation loan from a bank may be an option. However, if you have bad credit or a low income, you’ll likely meet the requirements of other alternative lenders. Applying with these lenders will give you a higher chance of approval.
How Much Does A Debt Consolidation Loan Cost?
As there are several different debt consolidation loan options available, the cost can vary greatly from borrower to borrower. When determining if a debt consolidation loan is right for you and will help you save money, consider the following features carefully:
- Interest rate (compared to the rates you currently pay)
- Loan origination fees and administrative fees
- Closing costs (for home equity loans)
- Property assessment (for home equity loans)
- Balance transfer fees
Types Of Debt You Can Consolidate
To consolidate your debts must be unsecured. This means that mortgages, car loans, and home equity loans cannot be consolidated. The most common types of debt that consumers consolidate are:
- Credit card debt
- Student loans
- Personal loans
- Personal lines of credit
- Medical bills
Debt Consolidation Loan Alternatives For Bad Credit
Debt consolidation loans are a great option for many people who are currently being weighed down by debt but they’re not the only option. If you have bad credit and are looking for a debt consolidation loan alternative, consider these options.
Tap Into Your Home Equity
If you own a house and are struggling with too much debt, tapping into your home equity to consolidate your debt is a great option. A home equity loan is a type of secured loan which means those with poor credit may find it easier to get approved. The size of a home equity loan depends on the value of the house and how much of the mortgage has been paid down. These types of loans are unique to the specific borrower, this is why it’s important to speak with a lender, like Alpine Credits, to learn more about your home equity loan options.
Personal Loan From An Alternative Lender
If you don’t want to work with a credit counsellor or a debt consolidation firm you can always take out a small personal loan and consolidate your debts on your own. Just make sure the interest rate isn’t higher than the ones you already have. Consolidating your debt with a higher interest rate will end up costing you more and consolidating with the same interest rate is frankly a waste of your time.
This option is the best choice for those who do not have too much debt they wish to consolidate. Getting approved for a large loan when you have a lot of debt is often quite difficult.
Credit Card Balance Transfer
While we wouldn’t necessarily recommend this for everyone if you can find a credit card with a low interest rate then it might be a good option. Just remember that transferring the balance of one credit card to another is called a balance transfer and comes with its own set of fees so it might not be worth the extra cost.
If you’ve decided that using a credit card to consolidate your debt is the best option for you, look for a credit card company that offers a card with any or all of the following features:
- A very low interest rate
- A special 0% interest introductory period, that lasts at least 6 months
- No or low balance transfer fees
Certain credit card companies will run special promotions for new customers wherein they offer them a specific period with zero interest. If you’re going to use a credit card to consolidate your debt this is the deal you need to be on the lookout for.
Debt Management Program
This option is great for those who need money management help as well as debt repayment help. You’ll work with a counsellor who negotiates with your creditors, creates a repayment plan for you, and helps you work out a budget.
With a debt management program, all your eligible debt is consolidated into one monthly payment. You’ll make this payment to the credit counsellor you’re working with who will then distribute it to your creditors. Most credit counsellors can negotiate a reduction, of up to 100% for their client’s interest rate. To be able to enter a DMP, your creditors will have to agree to the terms that your credit counsellor offers them. Most consumers who enter DMPs to consolidate their debt are debt free within 3-5 years.
Choosing The Right Option For You
Whether you qualify for a debt consolidation loan or you choose an alternative option, you don’t have to deal with debt on your own. Speaking with a credit counsellor is always a great first step in any debt repayment journey. Having bad credit doesn’t mean you should give up paying back your debts. Finding the best option that works for you can help you take control of your debt and start to restore your bad credit.
Bad Credit Debt Consolidation FAQs
Where can I check my credit score?
What’s the difference between a DMP and a debt consolidation loan?
How can I improve my credit score?
- Pay all your bills on time
- Spend no more than 30% of your credit card limit
- Don’t apply for too many loans at once
- Take out a secured credit card and make timely payments
- Look for mistakes on your credit report and have them fixed