Debt Relief for Bad Credit

By: Stephanie Stewart | August 30, 2016 (Edited July 7, 2017)

Good and Bad Credit Scores for Debt Relief


Good credit isn't necessarily required to enter a debt consolidation, of debt settlement program. While a good credit score will most likely lead to a lower interest rate, it is not a mandatory requirement for every company.
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Debt Relief Programs


Traditional banks and credit unions typically have a minimum credit score requirement, but debt relief companies are a good option for people with bad credit. Debt relief companies are different because they take into account each person's individual financial situation and circumstances.

  • Debt relief companies usually offer programs like debt management plans, debt settlement, and a debt consolidation loan.
  • Debt management can help people pay down all of their debts usually in less than five years. These plans negotiate with creditors to lower interest rates and monthly payments. They are a good way to pay off debt and avoid bankruptcy.
  • Debt settlement allows customers to make affordable payments while the company negotiates with creditors to settle the debt to a lower amount than was originally owed. Once an agreement is made, consumers begin paying creditors the saved funds. Debt settlement is probably the best option for people with bad credit who struggle to make their monthly payments.
  • Debt consolidation loans are also helpful to those with bad credit, and can get people financially back on track. They can combine multiple loans into one loan and one monthly payment.

 

Personal Loans


Personal loans are a bit different when it comes to credit scores. It is important to have good credit when applying for a personal loan because reputable lenders most always check one's credit score and debt-to-income ratio. These factors help lenders decide if they should approve the loan or not.

With steady income and low debt, people could qualify for a personal loan on average credit. However, those with excellent credit are far more likely to qualify for lower interest rates. Consumers with both a great credit score and a low debt-to-income ratio may even qualify for rates as low as those for secured debt loans.

Consumers should keep in mind that lenders always check the applicant's credit history, even for personal loans advertising no minimum credit score.

Typically for personal loans, credit risk is split into four categories:

Best credit risks (720-850)

People with credit scores in this range can qualify for large loans and extremely low interest rates.

Good credit risks (690-719)

While people with these score may not qualify for as large of a loan, it is likely they will get a very reasonable rate.

Average credit risks (630-689)

Consumers with average credit risk will get loans with a higher rate, and a bigger loan origination fee. At this point, personal loan lenders may start excluding people with too low of a credit score.

Bad credit risks (300-629)

This low of a credit score could disqualify people from being eligible for a personal loan. Consumers with a score this low may even end up with a 36 percent interest rate.

When it comes down to it, consumers with good credit naturally have more debt relief options. But not all hope is lost for people with bad credit. Many debt relief companies are accepting of each person's unique financial situation, even with a lesser credit score.

 

Sources:
https://www.nerdwallet.com/personal-loans/
https://www.nerdwallet.com/blog/loans/personal-loan-bank-credit-union/
https://www.careonecredit.com/debt-consolidation-loans-for-people-with-bad-credit

 

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Written by Stephanie

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