A lot of people across the United States struggle with debt (which include student loan debts, house and car loans, missed mortgage payments and business loans) and they dream of the day when they can pay off all their debts and start over again financially. Debt consolidation loans are one option to consider if you want a quick and efficient way to pay off your debts and be free of them. The problem is that most banks and credit unions often turn down applications for debt consolidation loans because they see it as a risky investment. But not all hope is lost. There are a lot of options out there that will be of benefit to people looking for debt consolidation loans regardless of how bad you think your financial situation or credit history is. In this article we will discuss what your best options are.
Banks and Credit Unions
Even though these financial institutions run on a risk- based pricing model (which means that the greater the risk is that you will be unable to pay the loan back in full, the greater the interest rate they apply to your loan), they are probably the first place you should look when you are in search of a debt consolidation loan. Just keep in mind that there is a very high chance that you will get turned down for this kind of loan so do not take it personally if you do. The reason that they are highly recommended is that they are institutions that you can trust and, therefore, working with them will probably be your best option, but do not forget that they are not your only option. Even though a bank or credit union may end up approving your loan, you must keep in mind that they might put a higher percentage of interest on your loan and this might mean that you end up paying more than someone with good credit.
Consumer Counseling Agencies
If you have bad credit, this may be a good option for you. Non-profit consumer credit counseling agencies are able to offer great alternatives to debt consolidation loans for people in bad financial situations. This may include negotiating better interest rates with the creditors to whom you are currently in debt with or finding other means and ways to pay off your existing debts. But you should beware of some of the risks that are involved with using agencies such as these. At the mention of the words “non-profit”, people instantly assume that this will provide the best bang for your buck and that they are agencies with your best interest in mind.
However, this shouldn’t fool you into thinking that they are the best option if you have not reviewed the rest. The only difference between a for-profit and a non-profit agency is that for-profit agencies pay taxes on the money that they make, non-profit ones do not. It does not mean that they will not charge you for the services they render. In fact, most times, they do. It’s up to you to do careful research to pinpoint great consumer counseling agencies that have great records working with people with poor credit and to make sure you fully understand the entire contract before proceeding.
Payday lenders sound very exciting at first – but there’s an obvious huge downside. This may be a good option when you need money right away but an in- depth look into payday lenders will reveal that they make their money entirely off people who are looking for debt loan consolidations or quick fixes. Because there are no credit checks, many people with bad credit seem to flock to this option without reading the fine print because it seems too good to be true. But do not be deceived, there is a lot to know about payday lenders. You should know that payday lenders are by no means a permanent solution for your debts. They are simply instant fixes, like bandages on wounds. You can benefit from them short-term but they cannot morph into permanent options for your loans. You should think about the fact that payday loans can become an addiction when you get used to quick fixes and this may have very adverse effects on your financial health. Make sure that you are really in need of this option before you go with it because it may do more harm than good.
Debt Consolidation Lenders
Lenders are independent entities and are very different to banks or credit unions. They work to unify the process of your debt repayments. When you work with these independent contractors, they help you to pay off all your loans to banks and any other institutions to whom you may be indebted. This means that you would have fused all your loans into one loan and you will make a monthly payment to just the debt consolidation lender instead of multiple institutions. It is a good way to alleviate some stress knowing that you are only making one payment instead of a lot of little ones that you can easily lose track of and get billed heavy interests on.
Keep in mind that debt consolidation lenders work like banks and credit unions in that they employ a risk-based model which means that you will be more susceptible to a higher interest rate if your credit is bad. The only difference is that they are more lenient to people with bad credit than banks and credit unions. You are most likely going to pay a bigger interest if you have a less- than- perfect credit score than someone with a good one. There are certain fundamental things that you need to realize about debt consolidation lenders. For starters, a good lender will present you with many different options to choose from and you must take the time to sit and look through these options in order to pick out the one that works best for you. Also, be sure that you attain written proof of the amount of money that was agreed upon as a monthly payment and also the length of time that it will take you to pay them all off.
Bad credit is not the end of your journey when it comes to refinancing your loans. There are a lot of options that you can explore and, with time, you will realize that your financial situation is not as bad and as hopeless as you initially thought. Just make sure that you assess your options thoroughly before making a commitment to any of these options and you should be well on your journey of getting back on your feet financially and building a better life for yourself.