Can I get a debt consolidation loan with a bad credit history?

Are you struggling with mounting debts and a steadily dwindling credit score? You’re not alone. In 2021-2022, Australian household debt grew by over 7%, and it’s showing no signs of slowing down. The good news is that there are solutions, the bad news is that some of them require a good credit score, leaving you in somewhat of a catch-22.

Debt consolidation is a prime example. It swaps multiple unmanageable debts for a single loan, putting you back in the driving seat. Many lenders require a good credit score before they’ll give you a debt consolidation loan, but there are alternatives, including bad credit personal loans. In this guide, we’ll look at the best of them and discuss your other options.

Understanding Debt Consolidation

A debt consolidation loan is so named because it “consolidates” multiple obligations into a single manageable loan. It provides several benefits:

• Simplified debts: You don’t have to worry about multiple repayments, penalty fees, and other obligations, as you only have one debt to repay.
• Faster Repayment: Some of the consolidated debts may not have clear fixed end dates, as with credit cards. With a consolidation loan, you’ll know when it begins, when it ends, and what you can do to bring that conclusion forward.
• Improved Rates and Fees: A good debt consolidation loan will have a lower interest rate compared to existing debts. You may also accumulate fewer fees and penalty charges.
• Improved Credit Score: Although a debt consolidation loan will initially reduce your score, the fact that it’s easier to make repayments means your payment history should improve over time.

There are two main types of consolidation loans in Australia: secured and unsecured. The former is secured against an asset while the latter is not. Bad credit personal loans can also be used for debt consolidation if you have a poor credit score.

Importance of Credit Score in Loan Applications

Your credit score is a measurement of your credit reliability. It considers your payment history, recent credit applications, credit utilisation, and other aspects and creates a score that lenders can view to check eligibility.

If you have several loans and a poor credit score, many lenders won’t give you a bad credit personal loan. In such cases, you can either spend some time repairing your credit score or look for a bad credit loan.

How to Improve Your Chances of Getting a Debt Consolidation Loan

The following tips will help you to improve your credit score and reduce your debt, giving you a better chance of securing a debt consolidation loan:

• Assess your finances and draft a budget.
• Cancel unused subscriptions, sell unwanted items, and put this money toward your debt.
• Create a debt repayment plan, clearing high-interest debts first.
• Pull your credit reports and dispute mistakes and inaccuracies.
• Don’t apply for more lines of credit until you get the debt consolidation loan.
• Keep cleared credit cards open.
• Pay down as much of your debt as possible.
• Keep making payments on time.

Some companies charge you for a process known as credit repair, which entails fixing credit report errors and negotiating with consumers. It can be a useful service, but it comes at a cost and if you have the time and will, you can do the work yourself.

Debt Consolidation Loans for Bad Credit Borrowers

Bad credit personal loans are loans targeted toward borrowers with suboptimal credit scores. They can be used for vehicle purchases, home renovations, and even debt consolidation. As long as you choose a reputable and competitive lender, the amount should be high enough and the rates low enough for consolidation purposes.

At Ume Loans, for instance, you can get a bad credit loan worth up to $25,000 following a quick online application process. We’ll ask you some basic questions, check your eligibility, and provide you with an answer. We don’t judge as harshly as other lenders as we believe that everyone deserves a second chance, especially when they’re actively seeking to improve their financial situation.

When looking for bad credit personal loans elsewhere, keep the following in mind:

• Check reviews: Look for online reviews and make sure you’re dealing with a reputable and well-reviewed company that cares about its customers.
• Check the terms: Don’t simply skim the terms and click “agree”. Read them, understand them, and ask questions if there’s something you’re not sure about.
• Choose the right amount: Don’t borrow more money than you need just because you can. It could create a bigger liability. Calculate how much you need and base your loan amount on that.
• Check the interest rates: The rates you’re offered can differ greatly from lender to lender, so check them, compare them, and find the best ones.
• Meet repayments: Once you have received the money and cleared your debts, prioritise your loan repayments. Failure to meet your repayments could put you in an even worse position than before.

Alternatives to Debt Consolidation Loans

Debt consolidation isn’t the only way to manage your debts when they are getting out of hand:

• Balance transfer: If you have a lot of credit card debt, look into a credit card balance transfer. Open a new card with more favourable terms,transfer the balance, and take advantage of the no-interest balance transfer period.
• Home equity: If you have built up enough equity in your home, you can use the funds to clear your debts.
• Debt negotiation and settlement: Contact your creditors to negotiate balances and request settlement amounts.
• Debt management: These programs help you to manage your finances and settle your debts.
• Bankruptcy: Although it’s a last-resort option, bankruptcy can be a good one if you’ve tried everything else.

Are you ready to consolidate your debts?

Debt consolidation loans are a simple and effective way to get your finances in check. They can be tricky if your credit score is low, but there are still options available, including bad credit personal loans.

These loans will clear your debts, relieve your financial stress, and give you a single loan—one repayment, one interest rate, and one set of terms. It could be all that you need to turn your financial situation around and get you back on track.

To learn more about this subject and get advice on debt consolidation, contact the experts at Ume Loans. We’re available to talk over the phone, or you can apply online.