Getting rid of debt is always a challenging task for most of us. And a bad credit score, which is typically below 620, would make this mission even harder. Fortunately, there is a variety of options available out there to help make your life much easier. If you are struggling with a huge debt and low credit score, here are 6 ways you could try.
A debt consolidation is basically a personal loan which helps to pay off multiple debts like student loans and credit cards. The loan should be paid back with a monthly amount at a fixed rate during 2 to 5 years.
If you are in a debt at a high-interest rate, chances are most of the monthly payments will go towards interest, which makes it difficult to pay down a principal balance and get out of debt. A debt consolidation loan can be a great way to pay off a high-interest debt with a lower-interest loan.
However, getting a debt consolidation loan when you have poor credit isn’t always an easy task. Some lenders require from 620 to 640 scores but also. Even when your credit score is under 580, there are still available options like places like Debt Consolidation USA don’t require a credit check, but the interest rates might be high.
Debt Management Plan
Often provided by debt consolidation firms, a debt management plan is typically considered as a non-profit credit counselor. During this process, your all of your credit cards will be closed, while the selected company will negotiate to reduce your interest rate and create a plan for repayment for all accounts. You need to pay a fixed payment on a monthly basis to the consolidation firm, which is then minus the fees and dispersed to the creditors.
The most important benefit of this method is that you do not need to have a perfect credit score. In fact, everyone can be accepted and all enrolled accounts will show that you are in a debt management plan on credit reports. In other words, you aren’t allowed to have any new credits until you’ve completed the program.
If you own a home or apartment and have built equity, it is possible to use this equity as a collateral for your loan. This means that a home-equity loan can be seen as the second mortgage and converts the equity of your home into cash.
A home-equity loan typically has a lower rate than most debt consolidation programs. However, you will need a decent credit history, often at 660 or higher. On the positive side, it is a much cheaper option to relieve your debt thanks to the low-interest rate.
This is a process which requires your loan to be charged off. Clearly, your credit score might be badly affected and all accounts would be transferred to collections. Your debt settlement firm will make contact with all creditors for a settlement negotiation, often from 40 to 60 percent of the original amount.
You must pay a payment on a monthly basis to an escrow account. Depending on the terms, it requires to pay over 12 to 48 months or in full. When the creditors have waited too long, they still have the right to sue you. Debt settlement might be a cheap option as you only need to pay back a small amount off your loan. However, your credit score can be badly affected and most service providers charge extremely high fees.
A cash-out refinance is quite similar to a home-equity loan. However, you will only have a mortgage with a lender instead of having many payments to your various lenders. This lender will help to refinance the primary mortgage and provide you with up to 80 per cent of your home in cash. With this method, you can relief your debt even with a lower credit score than a home-equity loan.
Balance Transference to a Zero Interest Card
There are many credit cards available which offer a zero interest rate from 1 to 2 years. You can choose to transfer the balance of a high-interest account to these cards to pay off the loans much quicker and cheaper. To qualify for this method, your credit score should be often on average. Otherwise, it seems to be not a suitable option to relieve your debt.