Do not let a bad credit score keep you from achieving debt freedom. Admittedly, it will be harder. But if you know the right steps to follow, it should not matter. You can solve your debt situation even if your credit reputation is tarnished.
Of course, solving your credit score will not be possible unless you understand credit scores. It is not just about knowing what your score is. It is more about understanding what will give you a good or a bad score. Fortunately, reports reveal that more and more people are becoming aware of the state of their credit scores. Most of these people looked into their credit reports because they intended to borrow money.
It seems like familiarizing yourself with your credit score is one of the steps you need to complete if you want to apply for a loan. That means if you plan to use a debt consolidation loan to get out of debt, you need to make sure you are aware of your credit score situation.
But what if you have a bad credit score? Can you still use a debt consolidation loan as your debt relief strategy?
Strategies to borrow a loan despite a bad credit score
Yes, it is still possible to get a loan to consolidate your debts even if your credit score is quite low. Here are the strategies that you can use.
Use a collateral
One of your options is to offer collateral so you can get approval for a secured loan. Before you get approval for a loan, the lender will not just check if you have the capabilities to pay them back. They are also concerned about your behavior when it comes to paying your dues. Sometimes, people can afford to pay their loans but are quite irresponsible about it.
This is why credit scores are important. If you have a bad credit score, that means you are not good with your payments. The lenders will either give you high-interest rate or not approve the loan because of the risk that you pose. However, this will not be a problem if you can offer collateral. This is their payment guarantee in case you fail to pay off your loan. On your end, you can use the collateral to motivate yourself to pay off the loan.
Get help from family and friends
Another strategy that you can use to borrow a debt consolidation loan despite your bad credit score is to turn to your loved ones. A lot of people frown upon the practice of borrowing from family and friends to help pay off debt. Admittedly, it can be really risky. If you are not careful, this can ruin relationships. First, it will put a strain between the two of you. Then if you completely fail to pay it off, that can destroy what you have with that person.
That does not mean it is impossible to be successful at this. You can succeed at consolidating debts through a family loan. You just have to make sure that you will follow through with your plan to pay it back.
Improve your credit score first
If the two is not possible, then you can just hold back on your debt consolidation efforts and work on your credit reputation. The thing about a bad credit score is that you can improve it. You just have to work hard to improve your credit score for debt consolidation. Just spend a couple of months prioritizing your debt payments so you can bring your credit score up. When it is higher, you can try to borrow the debt consolidation loan again. You might be able to get better terms this time because your credit score already improved.
Use debt consolidation loan to improve a bad credit score
Once you have the loan that you will use to consolidate debt, you can finally be on your way to debt freedom. But that is not the only thing that you can get out of it. If you do it correctly, you can also improve the bad credit score that you currently have. To do that, you need to follow certain rules.
Do not close old credit accounts
After you are approved of the debt consolidation loan, the funds will be used to pay off your multiple debts. If this includes credit cards, that means these will have 0 balances. Some people will choose to close it to avoid landing in another difficult debt situation. That is a mistake if you want to improve your bad credit score. Apparently, 58% of Americans do not know that their credit scores will suffer if they close a credit card account. Well, now you know that it can affect your score – especially if you are closing a long-time credit card. It will affect your credit utilization since you will have the same debt while the credit limit will be lower after you close the card. This is just one of the things that will be affected negatively.
Stop borrowing more money
If you really want to reverse your bad credit score, you need to stop borrowing money. As mentioned, you now have credit cards with 0 balance. Some people will be tempted to close the accounts. Others will go for a more destructive path. They will use their credit cards again. Do not give in to the temptation. If you have to, keep the cards somewhere you will have a hard time getting. It will keep you from spending it unnecessarily.
Stick to your debt payments
Obviously, you need to keep up with your debt payments if you want to improve your bad credit score. This is the biggest influence on your credit score. If you fail to make timely payments, it will have a negative effect. But if you stick with your payments, it will significantly improve your credit history. Every timely payment will make it go higher until you have an above-average score. Soon, you will be one payment away from debt freedom with memories of the bad credit score long gone.