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It’s understandable that people with seriously bad debt problems would be tempted to just give up and file for bankruptcy. While a chapter 7 bankruptcy (the most popular type) can be used to dismiss most unsecured debts, it will leave a serious stain on the person’s credit report. Two of the three credit reporting bureaus will actually keep a bankruptcy in a person’s credit file for 10 years. Plus, bankruptcies are a public record meaning that they will stay with a person throughout his or her entire life.
Why a debt consolidation loan can be a better alternative
A debt consolidation loan can be a better solution than bankruptcy as it can help improve a person’s credit score. It’s also a fairly simple way to handle debt because it will turn multiple monthly payments into just one payment that should have a reduced interest rate. Debt consolidation loans also have longer terms than most other debts. As an example of this, an unsecured loan would most likely have a term of five or seven years and a secured loan might have terms of 15 years or 30 years.
Consolidation loans for people with bad credit
People who have a bad credit record or credit score can also get bad credit consolidation loans. It may be possible to get one of these loans from a local financial institution but most people turn to the Internet. There are online companies that specialize in bad credit consolidation loans. some of which are peer-to-peer lenders, that is the loans are made from a person or group of people
to another individual with no financial institution involved. Examples of this type of lender include www.prosper.com, www.lendingclub.com and www.peer-lend.com.
Most of these lenders will loan money to people with bad credit but these loans can come with fairly high interest rates. LendingClub advertises debt consolidation loans up to $35,000 with interest rates ranging from 6.78% to 27.99%. And Prosper.com has debt consolidation loans up to $25,000 with interest rates that vary from5.65% to 35.64%. As you might imagine, people with bad debt are likely to get interest rates on the high end of this spectrum, rather than at 5.65%.
Another form of debt consolidation
The company Fast Track Debt Relief (www.fasttrackdebtrelief.com) advertises that it can also consolidate debts into one easy monthly payment. However, it does not do bad credit consolidation loans but instead offers a debt relief program that can help people become debt free in 24 to 48 months. Debt is not a factor for this company. In other words, it will help people no matter how bad their credit might be.
Bad credit consolidation through debt settlement
Another option for people with bad credit is to consolidate their debts through debt settlement. This is where the person contracts with a debt settlement company to negotiate with his or her creditors to get balances reduced. In most cases, a professional debt settlement company will save its clients thousands of dollars by reducing the balances on the unsecured debts by as much as 40% or even 50%. This, too, can help peoplebecome debt free in 24 to 48 months. However, it’s important to understand that debt settlement isn’t for everyone. A person must owe $10,000 or more and be at least six months behind in their payments for debt settlement to be a viable option.
How debt settlement consolidates loans
That settlement consolidate loans in the sense that once all of a person’s creditors accept all of the debt settlement company’s offers, the person will no longer be required to pay them. Instead, it will send the debt settlement company one payment a month until the settlement plan has been completed.