Guide to Consolidating debt with bad credit

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Tuesday, November 17th, 2009 Subscribe To Our Feed

If you have high credit card debt, bad credit and have been unable to get a consolidation loan from your bank, there are options for you to solve your finance issues.

Credit counselling companies exist to allow a debtor to consolidate debt repayments, allowing for an easier life and getting you debt free much faster.

Lets look at an example:

Pam and Mike are struggling to make the minimum payments each month of the following unsecured debts:

Total Debt	$35,000
Minimum Payment	$1,050

Currently, just paying the minimum amount each month would take them around 30 years before the debt is gone. This is because the average APR is 19.9%

Pam gets Mike to call our office and talks to a counsellor. Embarrassed about their situation Mike finds it hard talking, but is reassured when the counsellor explains how many people out there are carrying this kind of credit card debt.

The counsellor details what kind of payment plan they can put them on.Mike instantly sees the benefits of the proposal. Their monthly payments are reduced for a program lasting a total of 54 months:

New monthly payment

$750

This saves them a total of at least $16,188 over the 54-month life of the program, and they will be debt free.

Credit counselling and how it works

Credit counselling uses a program called debt management. When joining a program your counsellor acts on your behalf and contacts each of your creditors explaining your situation and negotiates for interest relief. The interest relief is what gets debtors out of debt so fast. Effectively the interest is stopped (or reduced), making your payments go to the principle debt and not to the interest.

Simplifying the debtor’s finances, they pay a single consolidated amount to the agency that is helping them. Already included in that payment is a small fee the agency takes.The remainder is distributed to the creditors, weighted accordingly on the outstanding debts.

Summary

Debt Consolidation options are out there if you have bad credit and can’t get that loan.The few downsides to completing a debt management program seem negligible when you consider the limited life one leads when carrying high debt loads for a period of time. Try talking to a credit counsellor today to find out more.

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