Can You Consolidate Debt with Bad Credit?
Why a Homeowner Loan May Be the Answer to an Adverse Credit Rating
Bad credit can make it difficult to consolidate debt. Missed or late payments will show on a personal credit reports for 6 years which means that debt consolidation loans are more difficult to find, especially for tenants. A tenant with bad credit is likely to be better-off pursuing a debt solution. However, those who own a property should be able to get a homeowner loan, provided sufficient equity is available and affordability can be proved.
Simplify Family Finances with a Homeowner Loan
Making lots of different, small monthly repayments to different creditors can prove confusing and result in errors. These errors, better known as missed or late payments, cause an adverse credit rating. Not only that, they also result in additional interest and charges being accrued. A bad credit homeowner loan simplifies family finances as only a single, affordable payment is necessary.
A Homeowner Loan Helps to Reduce Monthly Repayments
Consumers who are struggling with high APR credit card debt, hire purchase agreements and overdrafts can benefit from a homeowner loan. Those who consolidate debt, even with an adverse credit rating, can normally get a lower APR and spread repayments over a longer term due to the provision of collateral.
Example: The £5,000 bad credit homeowner loan.
Mrs Smith currently has the following personal debts and is wondering whether it would be worth her while to consolidate debt with a homeowner loan:
- Bad credit loan for £750 at 48.9% APR. Monthly repayments are £140.17.
- A credit card with an unpaid balance of £2,000 at 17.4% APR. The minimum payment is £40. It would take 33 years and 7 months to clear the balance.
- A further credit card with an unpaid balance of £2,250 at 18% APR. The minimum payment is £45. It would take 37 years and 1 month to clear the balance.
Her monthly repayments are £225.17. The other point of note is that making just the minimum monthly repayment on credit card debt does not clear debt for upwards of 33 years. Mrs Smith takes out a bad credit homeowner loan for £5,000 over 10 years at 11.4%. The monthly repayment is now just £68.44, representing a saving of £156.73.
Secured Loans Provide Creditors with Collateral
Always be aware that a secured loan provides a creditor with collateral, thus providing them with additional powers in the event of the borrower defaulting on the agreement. It is important to always think carefully before turning unsecured debt into a secured loan on the family home. Creditors are able to repossess a property and sell it in order to recover any money that is borrowed.
A bad credit homeowner loan can help to reduce monthly repayments considerably due to a lower rate of interest and the possibility of an extended term. Always think carefully before taking out a secured loan as turning unsecured debt into a secured loan on the family home provides a creditor with collateral.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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