While good credit isn’t required for a debt consolidation loan, it certainly helps. Such credit gets you better interest rates and terms, and bigger debt savings. Poor credit gets you fewer loan options, and the interest rates of many loans offered are too high to be worth it.
So, in the real world, do you need good credit for a debt consolidation loan? Let’s explore.
Benefits of a consolidation loan
There are many benefits, including and especially simplified finances. With a loan, your multiple debt payments will be condensed into one, and you’ll only make a single monthly payment. This also helps to keep you from missing payments, which can damage your credit score.
Unlike with credit card bills, you’ll pay the same loan payment amount monthly. Most debt consolidation loans have fixed interest rates and a set repayment schedule.
Another benefit is a better interest rate — if you can get it — than what you’re paying now on your current debts.
While getting a consolidation loan may seem like a sound way to deal with all your debt, if you have a FICO score below around 670, you may wonder how you’re going to secure one. The good news is that there are lenders that specialize in loans for people with poor credit. Most of them consider factors such as payment history and income in addition to your credit score.
You can help your chances of getting a loan by spending a few months paying down existing debt and then casting about carefully for lenders, pinpointing those that are likely to consider your recent efforts.
Know and monitor your credit score
Most loan decisions are based on credit. Knowing what that score is can help you identify lenders that may do business with you. Check lender websites for credit score requirements. There also are lenders that specialize in debt consolidation loans for bad credit in the USA.
Don’t be quick to jump on the first loan offer tendered. Do your research and compare loan amounts, repayment schedules, and fees from national and local banks, online lenders, and credit unions. Doing so could save you lots of bucks.
Keep in mind that unlike with banks and credit unions, online lenders often do a soft credit check, which won’t ding your credit score. You also can apply quickly and easily and can often get funds within a week.
Still, it might be a good idea to check with your existing bank, which may be more willing to overlook your credit woes.
Watch out for predatory lenders
Because you have bad credit, you could be an easy mark for lenders who might try to take advantage of your situation. That’s another reason to shop around carefully.
Consider a secured loan
You typically don’t need collateral for a debt consolidation loan. But if you haven’t had much success finding one you can afford you may want to consider a secured loan. Such a loan requires collateral like a home or vehicle.
Get your credit together
If you’ve exhausted your options and can’t find a loan with rates and terms that make sense to you, perhaps it’s best to wait. Taking some time to improve your credit score can ultimately give you a better shot at a consolidation loan.
Fix credit report errors, pay down debts, and get rid of nonessential monthly expenses such as club memberships.
So, do you need good credit for a debt consolidation loan? No, you do not. But such credit definitely helps. Otherwise, you do have options, including banks, credit unions, and online lenders.