Debt and bad credit often work in tandem. This is because if you are not responsible financially, you end up accumulating bad credit. And in order to get rid of the debt, you take on more debt to pay off the previous one.
You end up in a vicious cycle and as a result, this financial irresponsibility gets reflected in your credit report.
Your credit score suffers in the process and there are so many financial benefits that you cannot enjoy., a good interest rate is one of the main. However, the good news is that you can “repair” your credit and pay off your debt despite this state. This is what we will highlight in this article.
As you start paying off your debt, you will find that the same will get recorded in your credit report. And over a period of time, your credit score also improves.
Steps for getting out of debt
There are measures you can take to get out of debt with bad credit in the points that follow-
Try to get a personal loan
If you are a checking or savings bank account holder, you can approach your bank and apply for a personal loan. However, you must be sure that you will not default on payments and be regular with the repayment plan that will be advised to you. Also, be prepared to pay a higher rate of interest since you have bad credit.
Home equity loan
This is another way of managing your existing debt burden. You can use your house as collateral for taking out a home equity loan. The rate of interest that you will be entitled to will depend entirely on the value of your house or the amount of equity in your property.
Remember, if you have fallen behind on payments earlier, this will be a risky proposition. And if at all you go ahead with it, you must adhere to the repayment plan religiously so that you do not lose the asset.
Seek assistance from peers and family
If you share a good relationship with your peers and other family members, find out if they are ready to lend a helping hand to you in this financial distress. While few peers or family members will not charge any interest from you, others might ask you for some extra cash if this is an exercise that they carry out frequently.
Enroll for debt management plan
One of the biggest benefits of this plan is that you can follow it even if you have a bad credit. However, remember, this is not a loan but a plan that will help you by reducing the rates of interest that your loan accounts attract, which will invariably lower the amount you have to pay every month to the creditors. This plan is ideal for getting out of credit card debts.
Aside from allowing you to enjoy the above 2 main benefits, you will be offered credit counseling that will prevent you from falling into debt in the future.
Debt consolidation loans
This is perhaps your best bet. A debt consolidation loan will help you to “consolidate” all your loan accounts into one big loan account. This is beneficial especially if you have many creditors to deal with. By consolidating, you can pay off the debt to one single creditor every month.
This is basically a lump-sum payment that you make to your creditor. When you approach a debt consolidation lender, make sure you are able to negotiate with the rate of interest, which must be lower than what you have been paying all these months or years.
Ideally, debt consolidation works best for debt relief with bad credit.