Debt Consolidation For Bad Credit Borrowers

If you are like most Americans, you have a mountain of debt, and perhaps have extended your finances to the point that you have been late on payments or even defaulted on some of your existing loans. A few financial missteps can often have dire consequences when it comes to your credit report and score, but debt consolidation can allow you to slowly rebuild your borrowing history to a more favorable position while you get yourself out of debt, once and for all.

How Debt Consolidation Works

In debt consolidation, a servicer will pay off all of your existing debts and you, in turn, will make just one payment each month to your new lender, usually at a much reduced rate of interest. The lender will place a lien against your home until you have completely repaid them for the amount of money extended on your behalf to pay off your previous lenders.

It is important that you know the risks of debt consolidation when placing your home up as collateral to secure funding; if you default, your lender can foreclose upon your home to receive payment. For this reason, many folks elect to go for unsecured debt consolidation, which does not involve pledging collateral. However, for the bad credit borrower, it is hard to be approved without giving the bank something to hold on to as security.

When you decide to go forth with debt consolidation, always do some comparison shopping to determine which lender offers the best deal. Never agree to a payment that is beyond the reach of your budget. Pay special attention to the interest rate that you will be charged during the process - even a half-point difference can save (or cost) you thousands of dollars in future payments.

Ideally, your debt consolidation should have a term of five years or less, although there are some borrowers who extend it for up to ten years. The idea behind it is to become debt-free, and that is most easily accomplished when you have a term that is short and allows you to see the fruits of your efforts in the least period of time.

Changing Your Spending Habits After Debt Consolidation

Your previous behavior as a borrower has resulted with you having a less than stellar credit score. Debt consolidation will allow you to pay off your existing debts, including those that are costing you outrageous amounts of interest. However, any credit card balances that you had will now be brought back down to zero, which often causes the borrower to start accruing more debt.

Your best bet: close all of your credit card account except for the oldest and most established one that you have. Use this one credit card to purchases necessities that you must have, and pay it off each month other than running one-third of the available credit line as a balance. This will add points to your credit score. Avoid impulse buys or splurges, and become a good steward of your available credit in order to improve your financial outlook.

How to Get Personal Loans After Bankruptcy

Bankruptcy can turn your financial world upside down. Bankruptcy leaves an indelible mark of negativity on your credit file that can hard to escape. If you have filed bankruptcy this year, you certainly are not alone. There are over a quarter of a million bankruptcy petitions filed each quarter of the calendar year, on average, in the United States alone. There are many factors behind the rise in the number of bankruptcy proceedings - including the economic downturn and financial crisis that has left many American workers jobless.

Perhaps you are among those left looking for work without money for your bills - or maybe you have experienced a recent illness or injury that left you unable to work and therefore you became delinquent on important monthly payments - such as your mortgage or car payments. Filing bankruptcy becomes the only option for many individuals - and provides a means for them to protect their assets from foreclosure and repossession. If you have recently come out of bankruptcy - now is the time to begin rebuilding your future and improving your borrowing outlook.

Recovering Your Good Name

To begin the process of rebuilding your borrowing reputation and your good name, you should start with a personal loan. A personal loan can be either secured or unsecured, and there is a big difference between the two - mainly the amount of interest that you will pay on each. Because of your new status as a borrower who has filed bankruptcy - you should expect to pay more interest on either than the normal borrower would. Keep in mind, however, that paying a bit more interest now will help build your credit back up in order to qualify yourself for bigger loans with less interest later down the road - once you have established your newfound ability to manage your credit.

Two Versions Of The Personal Loan

A secured personal loan after bankruptcy is the easiest to obtain financial product that is available to borrowers of all incomes. A secured loan is a loan that is backed up by pledged collateral - typically your home or late model automobile. Your lender will place a lien against the property that you pledge for collateral that will be removed when you completely repay the lender. You can get secured loans from $1,000 up to $20,000 - depending upon your income and your ability to repay the lender for the money they extend to you. It is most generally accepted among financial advisors that individuals who have experienced recent bankruptcy start out at $5,000 or below for their first personal loans following bankruptcy discharge, but you may ask for more if you have a true need and are completely sure that you can repay the amount with ease.

An unsecured personal loan following bankruptcy is a bit harder to get. These types of loans are the riskiest in the eyes of the lender because they are not receiving collateral against the loan. It is most advisable to apply for the unsecured version of the personal loan with a creditworthy cosigner who will stand behind your ability to repay the lender.

Online Lenders Specialize In Post Bankruptcy Lending

You can find the loan products that are specifically tailored for your personal situation after bankruptcy on the Internet. There are many lenders who specialize in post bankruptcy personal loans that offer these loans online for borrowers at great rates that are highly competitive with traditional walk-in banks.