Thursday, January 10, 2013

Low Credit Score? Know Your Debt Consolidation Loan Options

A debt consolidation loan is one of the many ways that you can implement a debt relief program in your life. If you really want to focus on your debt payments, you would want to make it a little bit easier to manage.

While some financial experts are against this type of debt relief program, it is logical nevertheless. Applying for one big loan to pay off the smaller ones will help make things a lot easier for the debtor. As the name suggests, it can help consolidate the debts so that the debtor only has to concentrate on making one monthly payment. However, there are signs that it is the best option for you. Apart from having a steady income, you also need to have a good credit score.
But before you can turn away because you know you have a bad credit score, there are options to maximize the benefits of this type of debt relief. A good credit score is helpful because it will categorize you as a low risk borrower. That will prompt the lender into giving you a low interest rate on your loan - which is something that is difficult to achieve when your score is low.

However, there are other ways to get this low interest rate and that is through a collateral. If you get a secured loan (a type of loan that requires a collateral), you can get very favorable rates from your lender. Despite having a low credit score, the presence of the collateral will the whole transaction a lower risk than it should be. The investment of the lender is secure because even if you default on your monthly payment, they have the right to seize your collateral as payment alternative.

If you do not have a collateral to your name, there are also other options that, unfortunately, involves a higher interest rate. A local credit union or banking institution should know your background and thus be more amenable to provide you with a good deal on your loan. While it may not be as low as a secured loan, knowing the institution should be able to help you negotiate for better terms.

Peer to peer lending or P2P is also an option that you can look into. It involves individual lenders from the society itself and not a bank. A third party company will help connect you to a person online who will review your loan application and grant you the requested amount. Sometimes, one lender loans the full amount while there are time when 2 or more chips in.

Despite the presence of these alternatives for people with bad credit scores, keep in mind that a debt free life can only be achieved if you go to the root of the problem. It goes beyond just paying off what you owe. Discipline yourself and learn proper financial management. That way, you can pay off your debts and at the same time, develop the habits that will make sure you do not fall into the same situation again.

If you wish to talk to a professional about your debt relief options, feel free to get in touch with National Debt Relief. Visit their website and talk to one of their friendly debt experts. The initial consultation is free.

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