Debt Consolidation Loans For Bad Credit Borrowers: Viable Solutions To Real Problems

Sunday, May 11, 2014
At some point, we all have to deal with stressful financial situations. As time goes on, our creditors become more demanding, and the added interest on late loans and credit card payments, build up to a level that makes it even harder to stay on top of things. But with the availability of debt consolidation loans for bad credit borrowers, there is a viable escape.

The chief problem for anyone with financial difficulties is cash flow, with repayments falling behind only because the cash was not available at the required time. The logical solution, therefore, it to restructure debts to ensure the repayment schedule is simpler. This can be done by clearing existing debts with a single loan, then repaying it.

And that is exactly what a debt consolidation loan is for – buying out the balances of existing debts to allow the overall debt to be restructured into something more manageable, and more affordable. But is the deal really as viable a solution as it seems?

Consolidation As A Solution

The good news when seeking debt consolidation loans for bad credit management is that opting for consolidation offers more benefits than simply buying out existing debts. In reality, the chief motivation when seeking these loans is to clear debts, but there is also an opportunity to set things up for a better financial future.

For example, since all of your debts have been brought together and bought out, it means they have been paid off in full. This fact is noted in your credit report, thus ensuring that your credit score is increased. So, as well as clearing existing debts, consolidation ensures better loan terms in the future.

Also, while all debts are basically replaced by a debt consolidation loan, the new structure should mean that the size of monthly loan repayments falls significantly compared to the combined repayments of the original loans. This means that the debt-to-income ratio is improved too.

The Consolidation Terms To Seek

So what are the terms that should be secured to make the whole exercise worthwhile? Actually, besides the usual interest rate concern, there is only one real issue when applying for a debt consolidation loan for bad credit borrowers to consider carefully.

The term refers to the lifetime of the loan, with the basic idea being the longer the term the smaller the size of the repayment each month. For example, the number of repayments in a 3-year loan is 36 (36 months), to the principal borrowed is divided by 36. If the term is 5 years, the principal of divided by 60.

If the debt consolidation loan sum is $10,000, the difference is $110, which is a significant sum to free up, thus lowering the pressure to make the necessary repayments. So, clearing existing debts and saving money can actually be done simultaneously.

Where To Get A Consolidation Loan

A key part to securing the maximum benefits from a debt consolidation loan for bad credit borrowers to enjoy is to approach the right lender. Like all financial products, there are different terms available from different lenders.

Most lenders offer some kind of debt consolidation loan, but the interest rates are usually quite high and the loan limit is fairly low. This is because the applicants are bad credit borrowers. Online lenders will offer better terms than a traditional lender, but the same restrictions apply.

A professional debt consolidation company is ideal when the size of the debt is very high. They take the task of clearing existing debts into their hands, and in return they withdraw set payments from your account over an agreed period of time. They will charge a fee, but they also take control of finances, so the risk of failure is practically nil.