Nowadays, it seems that everybody has personal, credit card, mortgage and just about any other debt possible.
It can be very hard paying them off especially in these recessionary times when money is tight.
And so, you end up with a low to fair credit rating that does not help your reputation with lenders.
Lets not forget that being neck-deep in debt can be very unsettling to your peace of mind.
Fortunately, there is the option of a bad credit debt consolidation loan.
In simplest terms, you take out one loan to pay off virtually all of your pre-existing debts with the intention of securing a lower fixed interest rate and making payments towards just one loan.
Just like all forms of paying off multiple debts, taking out a debt consolidation loan has its pros and cons.
On one hand, you can once again enjoy the benefits of a good credit rating as well as pay off just one loan instead of multiple loans, both of which are good for your financial standing and psychological health.
On the other hand, you will be encouraged to continue your poor spending habits as well as fall victim to unscrupulous debt consolidation firms.
Thus, it is always important to choose carefully the bad credit debt consolidation loan company you will be applying in.
You want to make sure that the interest rates you are paying on the debt consolidation loan is worth it, that your loan is not passed on to a third party and that the company will be in business until you have completely paid off your loan.
Basically, do your research, ask family and friends and inquire of government agencies.
When you do decide to take out a bad credit debt consolidation loan, you have three basic options to choose from.
First, you can take out an unsecured loan to pay off all your existing unsecured loans.
Second, you can apply for a secured loan with collateral asset, preferably your house, to back it up and then pay all your present debts.
Third, the debt consolidation company will purchase your existing loans from your creditors at a discount.
When choosing from among these options, do consider the pros and cons under each one.
For example, buying your loans at a discount can affect your ability to discharge your debts in bankruptcy proceedings although you can avail of considerable savings.
When considering your options, you want a lower interest rate on the total debt consolidation loan, an amortization amount well within your expected budget and a sufficient payment period, among other desirable qualities.
Also, it helps if the risk to your house being foreclosed is lessened by the acceptance of other collateral assets.
You do not want to end up in a tent city when you were avoiding the cleaners with the debt consolidation loan in the first place - it's still the same result.