Do I Need a Good Credit Score for Debt Consolidation Loans?
When someone has trouble paying their debts every month, debt consolidation can look like a good way to fix the problem. People who have already missed a few payments, however, are often concerned that they won’t qualify for debt consolidation because their credit score is low.
The concern comes from the fact that debt consolidation requires a person to take out a new loan to pay off the old debts. This loan will typically have better payment terms (including a lower interest rate and lower monthly payments) than their old loans. In order to qualify for such a great loan, however, many people assume that they need a good credit score.
The Truth about Debt Consolidation Loans
The truth is that debt consolidation can work for people with poor credit. To start, most lenders that offer debt consolidation loans have loose lending conditions. This means that they are used to seeing people with some blemishes on their credit, and they’re willing to accept this. This is because people who are applying for a debt consolidation loan tend to be at a point where they are willing to do what it takes to get rid of their debt. Debt consolidation loans tend to have higher payback rates than credit cards and medical bills, because these borrowers are motivated to pay off the debt.
To help them, people who apply for debt consolidation loans work with a credit counselor. This professional looks at their debt and makes a recommendation to their client about how to budget with the new consolidation loan. A credit counselor will also help their client to select a loan that is right for them.
How They Can Help
Essentially, the lower monthly payment that comes with a debt consolidation loan makes it easier for a customer to pay off their debt. Banks know this, and they’re willing to work with people who have made mistakes in the past. The bank knows that with a loan with better payment terms, they are much more likely to make payments.
This is also why it’s usually better for people with bad credit to work with a counselor when trying debt consolidation. Finding a loan on their own with better payment terms can be very difficult if not impossible.