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Learn about the debt consolidation options available to you even with a bad credit score.

Your credit score can affect many of your buying decisions. Good credit can help determine if a lender will approve you for loans or new credit lines. Good credit can also help you qualify for more favorable interest rates and terms.

Conversely, poor credit can prevent you from getting approved for a loan or obtaining new credit like credit cards. If you have bad credit with outstanding debt, you may be able to consolidate your debt and improve your credit and get your finances back on track. Here are some options to help you with debt consolidation even with a bad credit rating.

Debt consolidation with bad credit history

The first step to debt consolidation is to adjust your monthly budget. Try cutting back on unnecessary spending and start paying down higher interest debt. Part of your credit score takes into account how much credit you use. If you can reduce your outstanding balances to less than 30% of your credit limit, you can get a better handle on the debt.

Debt consolidation options for homeowners with bad credit

When you have bad credit, you may have a tougher time getting approved for a loan that can help consolidate your debt into one payment. All the same, here are some options to consider:

  • A cash out refinance mortgage loan is a refinance where you take out more than you currently owe on your mortgage and use the cash to pay off other debt.
  • A home equity loan is another option to consider. This is a second loan that you can take out to pay down your debt. These loans generally have a lower interest rate than credit cards and have a fixed rate.
  • A home equity line of credit (HELOC) is a second loan as well but the interest rate is variable and you start by just paying interest. After the initial draw period, you will have to pay interest and principal, which can increase your monthly bill. Learn more about the differences between a cash out refinance, home equity loan and HELOC.
  • A special debt consolidation credit card can also be used to combine your outstanding credit into one credit card payment. Just be aware of the interest rate and payment terms. It may be worth contacting your credit card companies to discuss options.
  • A personal loan can also be used to pay off debt. However, you will have to find a loan with a reasonable interest rate, which could be challenging if you have poor or bad credit.

 

If you're interested in learning more about how you might get a home equity loan or cash out refinance with poor credit then contact the experienced home loan specialists at Freedom Mortgage.

Our team is happy to discuss your options to consolidate debt even if you have poor or bad credit.

Other Insights

Get the latest tips and insights to help guide you throughout your homeownership journey.

What is debt consolidation?

Can debt consolidation help reduce my high-interest debt?

How does HELOC affect your credit score?

Will opening a HELOC affect my credit score?

How do I figure out my debt-to-income ratio?

Get a total picture of your finances and how much you can afford.

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