How to Consolidate Credit Card Debt With Bad Credit

Limiting credit card use is the first step to managing your debt.

Debt consolidation specialists combine all your credit card debt into one (usually lower) amount. They accomplish this by 'buying' loans from your previous lenders and repackaging them, or lending you the money to pay all of your debt off. Consolidating credit card debt is difficult if you have a poor credit history, but these companies are your best bet. You will likely face higher interest rates on your repayment loans, and depending on how much money you owe you may have to put up your house or other major asset as collateral against the loan.

Instructions

1. Evaluate all of your finances and calculate your monthly income, financial obligations and how much you owe. Compile a report detailing all of your debts, particularly who you owe and exactly how much. Contact each lender for the most recent amount owed. A debt report details every aspect of your financial life to potential lenders, and this transparency will help take the focus off your your poor credit history. Debt reports help expedite the process of consolidating your debt.

2. Contact debt consolidation specialists. You can find them in the phone book or visit a bank to have a loan officer refer you to debt specialists. For loan applicants with bad credit there are two main options for consolidation: determine if you are better off with packaging your loans or taking out a debt consolidation loan. Packaging your loans is the best option for an individual without collateral who is looking to pay down their balance. Taking out a debt consolidation loan often requires large collateral such as a home, but they offer lower interest rates than other loans for sub-prime borrowers.

3. Present your finances to the debt specialist and complete the loan process. This will often include an application process in which your assets and situation are evaluated. Sub-prime candidates for loans (those with poor credit) face higher interest rates and are rejected more often. Having your information in order will make it more likely that you will be approved for debt consolidation. Once you are approved be sure to make your payments on time to avoid further damaging your credit.

Tips & Warnings

• Once you are on the path to being debt free, do not backslide by amassing more debt. Pay off your consolidation debt on time each month to establish a new, positive credit history. Avoid using credit cards and, if possible, get rid of them altogether.

References

• Federal Trade Commission: Knee Deep in Debt
• Lower My Bills: Credit Card Debt Consolidation
• Debt Consolidation Care: 8 Benefits of Debt Consolidation
• Paying Paul: Bad Credit Debt Consolidation