How To Get Out Of Debt With Poor Credit
People who have bad credit have many loan options, some of them decent. Realize, though, you will pay for your poor credit in the form of higher interest rates. However, the good news is your credit score will get better and your cost of borrowing will decrease if you satisfactorily repay the loan — and maintain your other obligations in good stead.
With that in mind, here’s how to get out of debt with poor credit.
Hit Up A Bank Or Credit Union
Give your bank a try, particularly if you’ve been a longtime customer. They do want to keep your business so they may be open to giving you a personal loan.
You may also want to consider joining a credit union. Because these institutions are nonprofit, they have more flexibility with their loan eligibility standards and interest rates.
You can ask family or friends for a personal loan, or to cosign one for you. Be aware though, this tack is risky. If you can’t make the payments, your relationship with those people will likely suffer.
Consolidation May Still Be an Option
Another popular option is a debt consolidation loan. This involves taking out a loan to cover all your unsecured debts then repaying the loan with a single monthly payment. However, unless the interest rate you’re paying on the loan is less than what you pay on your combined debt, this might not a sensible strategy for you.
If you have owned your home for some time, you could borrow against the equity you have in it. Your credit score is not a factor here, and home equity loans are low interest because the house is collateral.
There’s also peer-to-peer lending, but some places require a credit score of at least 640. A low credit score can mean exorbitantly high interest rates. But lenders such as Upstart and Avant could be worth checking out.
If you’re looking to get rid of credit card debt, a debt management program could work for you. You don’t need good credit to join, and the program can help you reduce your interest rates and lower your monthly payments while providing credit counseling.
This could be a viable option if you have poor credit and thousands of dollars of debt. You may be able to score a deal wherein you pay less than what you owe. The downside is your credit score will sustain a bit more damage because of the nature of the process.
Shine Up Your Credit
It’s also wise to make every possible effort to clean up your credit score before applying for a loan. A bump of 20 or 30 points can often make the difference between being a bad and good credit risk. Also, check your credit reports for errors such as debts that aren’t yours.
One of the quickest ways to beef up your credit score is making your payments on time each month. In fact, your payment history in the greatest factor in determining your credit score.
Also, keep your credit balances low. Don’t use your cards at all unless necessary and pay them off as soon as possible. Don’t close unused cards, however. Keeping the accounts open helps broaden the “length of credit history” aspect of your credit score and improves your debt-to-income ratio too.
So, now that you have some tips on how to get out of debt with poor credit. Hang in there, make wise decisions, and you’ll soon be on the road to good financial health.