Debt consolidation and low-interest rates are almost synonymous. However, this isn’t always the case. In as much as debt consolidation loans get approved for individuals with poor credit, it is certainly done at higher interest rates. Such borrowers are considered high-risk borrowers and the lending companies use the high-interest rates to cushion themselves in case a borrower defaults payments.
Your current debts will be consolidated into one, but you will have to pay a higher price through your monthly repayments.
As a borrower with poor credit, you must make plans to improve your credit score situation. The path will be thorny but workable. Here are the main dos and don’ts or guidelines for your poor credit situation include:
Don’t apply for any form of new financing
Your credit score will improve with a new secured credit card. However, you shouldn’t fall for any auto or mortgage financing plans regardless of how affordable they appear. Your poor credit makes the affordable auto plan expensive because your plan will be processed at a higher interest rate. Your monthly payment will also be higher, straining your budget further.
Do not cosign
Even when paying off that high-interest debt consolidation loan, you should not cosign with your friends or family, however much you wish to help. Though a selfish move, declining to cosign means that you do not have more debt in your name to lower your credit rating. Remember the bigger burden that was associated with default on your friend’s end. Your poor credit and the poor financial situation will not carry the strain.
Do not justify your situation
Betting on the fact that your poor credit is a result of your poor decisions will result in big wins on our side. Acknowledge your mistakes and make a decision to turn things around. Don’t give in to your peer’s expectations, live within your means, shop with cash, and if possible, find an alternative source of income.
Avoid walking around the mall with your credit cards. Your habitual spendthrift shopping tendencies will result in more debt.
Check your credit report
It is advisable to check your credit report at least once annually. The checks could reveal errors that have caused the poor credit. Dispute these errors for improved credit scores. For professional advice in credit report analysis, check out online debt consolidation reviews and get the best company to advise you.
Pay your bills on time
To determine your credit score, the credit bureau takes into account your payment history. Individuals with good ratings pay their debts in time. Realize that this could be you too. Pay up all your bills and debts in time to fix that bad credit. Have a direct debit system with your bank or call your creditor if you cannot make the payment in time. Don’t leave your credit card loans unpaid.
Build your savings account
However bad things are, you must make a habit of saving a small percentage from your earnings. When in need of an emergency financial cushion, your savings account will help you out and not a new debt.
These guidelines have been shown to be effective in improving poor credit. You must however note that your scores won’t go up magically with one payment, make your payments religiously, spend less, save more, and be patient.