Bad Credit Debt Consolidation Loans

There seems to be no shortage these days of debt consolidation loan advertising aimed at those with bad credit. Surely there was a point in time when this was a viable option for consumers looking to simplify and reduce their monthly debt payments, or perhaps to make their interest payments tax deductible. However the reality of the situation now is that bad credit debt consolidation loans simply do not exist anymore.

The lending environment has changed drastically in the past few years, with banks and other lending institutions now considering bad credit debt consolidation loans to be too risky. While they were much too lenient in their lending requirements before the bubble burst in the housing market, the pendulum has now swung too far in the opposite direction. In fact, many consumers with excellent credit are having trouble getting loans these days. This leaves today’s debt-burdened consumer with a more uncertain road to travel in trying to find some relief.

Alternatives to Bad Credit Debt Consolidation Loans

Photo by Salvatore Vuono.

Are there any alternatives to bad credit debt consolidation loans, aside from bankruptcy, for those with serious debt problems? The good news is that yes, there are, and there are real solutions for virtually any debt problem. The only caveat is that the debts must be unsecured. The list of items that are excluded: mortgages, home equity lines of credit (HELOC’s), auto loans, government loans, IRS taxes and any debts that are pending lawsuits. But most consumers these days are struggling with credit card debt, and this is exactly the type of debt that these other solutions are designed to handle. In addition to credit card debt, medical bills, collection accounts, auto loans after repossession and other unsecured personal loans are eligible. A consultation with a debt professional can clarify any doubts you may have.

Other debt relief solutions include debt settlement and debt management (also known as credit counseling), and each is designed with a particular debt situation in mind. Debt settlement programs are designed for those whose debts are simply too overwhelming for them to ever pay off completely. The debt settlement company will negotiate with the consumer’s creditors and sometimes can negotiate for significant portions of the total debt amount to be forgiven. However, they must be willing to accept the fact that credit damage will take place, as well as being willing to expose themselves to the possibility of other serious risks as well. On the other hand, debt management programs (DMPs) are tailored to those who need debt assistance but are not willing to sacrifice their credit in the process. The debt management company can reduce interest rates and offer the consumer a single consolidated monthly payment to simplify the payment process, and consumers can usually become debt free in a fraction of the time.

What is the downside of being in one of these programs? Any bad credit debt solution will have an effect on your credit report. Of course the effects of bankruptcy are the worst, as they can last for 7 to 10 years or even longer. Debt settlement will damage your credit, and additional risks that must be considered include judgements, wage garnishments and having the accounts sent to collection. Debt management, on the other hand, does no damage at all to a consumer’s credit score. It will be noted on your credit report that you are managing your debts through a DMP, but this will not have a negative impact on your credit score, according to FICO.