Debt Consolidation Loans

If you have bad credit and are unable to meet your debt obligations, a debt consolidation loan may provide a workable solution. While it may seem that you would have difficulty obtaining a loan with bad credit, there are lenders who offer such services.

A debt consolidation loan takes advantage of current low interest rates to consolidate all your unsecured loans into one monthly payment, and may be either a secured or an unsecured loan.

Benefits of debt consolidation
The main benefits of consolidating all your current bills under one new loan are: The main benefits of consolidating all your current bills under one new loan are:

• You will be able to pay all your unsecured debts using one simple monthly payment.
• Lower interest rates. Debt consolidation loans only make sense if you can get lower interest rates than those for your current debts. Lower rates mean more affordable monthly payments.
• Longer repayment terms – In most cases, debt consolidation loans will allow you more time to pay off your loan. While this will also lower your monthly payments, it may mean you will pay more over the long run.
• No more collection calls – A debt consolidation agency handles all the collection calls and letters once you have obtained a new loan.
• Repair your credit – A debt consolidation loan can help you avoid bankruptcy, and by making regular payments you can begin to repair your bad credit record.

Who qualifies for a debt consolidation loan?
Basically, in order to qualify for a debt consolidation loan, you must be able to make the new payments for the lower interest rate loan. If your finances are so bad that you cannot make these new payments, then your only recourse may be to declare bankruptcy.

In addition, you probably will not be able to get a debt consolidation loan if creditors feel that you are able to pay your current loans without too much hardship. This makes sense when you look at it from the standpoint of the lender. If you are not willing to make your current payments even if they are affordable, why should they think that you would repay the new money that they lend you?

Debt consolidation loans are only available for unsecured debt like credit card bills. Loans that are secured with collateral like your home or car loan cannot be covered using debt consolidation.

If you are truly having difficulty repaying your current unsecured debts, but you have the ability to make more affordable payments, then you should look into the possibility of a debt consolidation loan.

How do I find debt consolidation loans
Either you can use the services of a credit counseling agency, or you can seek the loan on your own. The Internet is a great place to start for either approach.

Use major search engines like Google, Yahoo or Bing to find credit counseling services or to find suitable lenders. In both cases, it is good to shop around and compare before making any final decisions.

Be careful using credit counseling services
While there are many good debt consolidation agencies, some also exist only to make money off unwary consumers without providing much in the way of actual services. Be careful to check on the company's reputation before doing business.

The first thing to do is to analyze your budget and find out how much you can pay on a monthly basis. A credit counseling service can help you with this process. If you are able to come up with a reasonable payment plan using current interest rates, then you can begin the process. If you use a credit consolidation service, they will do all the negotiating with your creditors. In most cases, they will find a new creditor to provide the consolidation loan. You make your new monthly payments to the consolidation service, and they are responsible for paying all your creditors.

You should also know your rights as a credit consumer. The Federal Trade Commission (FTC) has some helpful pages that can familiarize you with your rights and obligations along with offering tips on how to avoid unscrupulous debt consolidation services.

• FTC Facts for Consumers: Knee Deep in Debt (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm) – At this page, you can learn about your rights as a credit consumer along with the various options available when you are having trouble paying your bills.
• FTC Facts for Consumers: Debt Collection FAQs (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm) – Useful information on laws and regulations governing debt collection.

At the above pages, you can learn, for example, that debt collectors cannot contact you at any time of day or at any place. You may tell a debt collector not to contact you at your place of work.

The FTC resources also provide information on regulations regarding disclosure by debt consolidation agencies. Before you sign any contract with one of these agencies, they must first provide you with sufficient information on pricing, repayment terms, program results, offers from creditors, and possible negative consequences of not making payments.

Generally, you should avoid any debt consolidations services when:

• You are asked to pay in advance before your debt is settled.
• They you to lie about your credit record, to obtain a new tax ID number or to do anything that misrepresents facts.
• They guarantees to free you of debt
• They promise to resolve debts without studying your financial situation.

Seeking loans on your own
Check out different lenders to find the best rates possible. Be careful to look for hidden costs like closing fees that might make the loan less attractive. If you have bad credit you may not be able to qualify for an unsecured loan unless you have a good income. Otherwise you will need to apply for a secured loan that will require that you pledge some of your personal property as collateral.