How to Fix Your Life When You’ve Spent Wayyyyy Too Much…

Did you spend too much money this year?  You can turn to debt consolidation solutions to manage your credit card bills.  However, this becomes a thorny issue if the you have a bad credit rating due to late or non-payment of debts.  If you find yourself in just such a predicament, you should let out a sigh of relief as you still have one option: a specialized bad credit debt consolidation loan.

Debt Consolidation Loans for People with Bad Credit Ratings

Some might scoff at the idea. How can a person with bad credit rating still get a fairly good deal? Well, there are indeed several companies who will still give a loan with a relatively better rate than the average percentage they could be paying on their credit cards.

Most credit cards explicitly state in their terms of agreement that should a credit card holder fail to pay their balances on time, the bank will raise the annual percentage rate to the default rate. In most cases, the jump in the APR is much higher than the introductory APR. In such a scenario, a borrower may just be paying the interest charges instead of the principal amount. This leads to a virtually endless debt cycle.

Bad Credit Debt Consolidation Options

Bad credit debt consolidation can either be secured or unsecured. What this means is that the lender may extend credit for the borrower’s debt consolidation loan with or without collateral. Collateral is any property of value which the lender may accept as an assurance that should the borrower default on his payments, the lender gets to keep or possess the said property.

Unsecured debt consolidation loans have higher interest rates and less favorable loan repayment terms than secured loans. This is understandable since the lender offering unsecured loans have a higher risk of the borrower defaulting on his loan. The fact that the borrower already has a bad credit rating aggravates the risks. Thus, the lender will charge high interest rates to offset possible default.

In the case of secured debt consolidation loans, the borrower can get better rates and terms. The lender in this case, has less risk than the unsecured loans lender. If the borrower defaults, he holds the deed to the borrowers’ property so he can easily recoup his losses.

Benefits of Bad Credit Debt Consolidation

The borrower will get to rebuild his credit record once he has obtained a debt consolidation loan. For instance, a borrower used to have debts from ten different lenders. With a debt consolidation loan, he will be able to trade his 10 different loans for just one. Though the principal amount owed is the same (perhaps with some service charges, too) records will show efforts toward debt burden reduction.

Having only one loan with possibly better rates (perhaps a fixed rate versus the previous variable rates) and better terms (perhaps a lower monthly minimum due) than the previous loans generally means better ability to make payments on the loan. Keeping up the monthly payments is also made easier by the fact that he will have only one lender to pay, one due date to remember and one interest rate to watch.

However, things can only get better if the borrower refrains from taking out another loan. This means curbing his desire to spend and exercising the utmost level of discipline so he can make the required monthly payments on time. No excuse will be good enough if one messes it up, again.

Belind Mills writes articles on personal finance and  debt, more of her articles can be seen at www.irs-easy.com