If you are like many Australians and are burdened with debts, you may want to plan debt consolidation as a solution. This method does come with its benefits, and it can be a real life-saver if you’re mounting debts from different sources.
Why You Should Plan Debt Consolidation
Maybe you’re still unsure about this, so let us chime in with some of the key benefits that debt consolidation can offer you.
- Consolidation: There’s a reason for its name; debt consolidation does exactly that, consolidate. Instead of making multiple payments through different dates, you make a single payment based on a unified interest rate. This leads to money savings as time passes.
- No Extra Charges: If you pay each debt individually, you end up with interest charges, penalties, extra fees, and don’t forget what happens if you pay late. Paying once per month leads to saving money that would otherwise go to these charges!
- No Stress: Are you afraid of your phone or mailbox? I’d be afraid too if I had to deal with multiple calls and letters from collectors. Get rid of that stress by consolidating your debts into a single payment, the loan sharks won’t have a reason to bother you anymore.
- Improved Credit Rating: If you have a streak of late or defaulted payments, then you shouldn’t be surprised to know that your credit score has been lowered. This, unfortunately, leads to being ineligible for strong financing. With consolidated, on-time payments, your credit score will start to rebuild, making you once again eligible for bigger loans!
As you can see, getting a debt consolidation would make your financial life much easier and positive, so, now you must be asking yourself “How do I get one?”
How to Get a Debt Consolidation with a Bad Credit File
The requirements to become a debt consolidation candidate vary greatly from one moneylender to other. Some lenders set the bar low, so qualifying is easy and hassle-free, others are much stricter, leading to higher requirements.
In general, typical banks won’t accept you if you have:
- A bad credit file
- Defaulted on loans
- Filed bankruptcy
- You are self-employed
If you have any of those so-called “slurs” on your credit file, don’t fret! There’s still a way!
Let’s go over the criteria used by lenders. Like we said before, the requirements (and the flexibility of each) vary from lender to lender, but there are “basic” elements that all agents consider before giving you a debt consolidation loan.
Credit Score Threshold
If you have a high credit score, lenders will be more than pleased to deal with you, but the contrary applies as well.
Now, don’t panic over this. You don’t need a “perfect” rating (and frankly, there’s no such thing), you just need to meet the expectations of the particular lender you’re dealing with.
Credit scores can be broken in thresholds. Your credit file might be regarded as “average” or “good” depending on which range it falls in.
All moneylenders have their own accepted threshold, some might tell you that you require at least 600, others might say that they only take 620 or higher.
If your score doesn’t match their expectations, you can expect a decline of your application.
Don’t take this as something personal, they need to keep their business going, and someone with a bad credit score might seem like a risk. You can always try a little convincing, and if that doesn’t work, try improving your credit rating. If that fails, seek another lender.
And this the ugly part. Besides checking your credit rating, lenders will likely look at your credit history.
This will tell them about your behaviour, i.e. how often you default, how often you pay on-time, how many times have you paid late, and especially, how have you been acting in the last months.
The last bit is important, even if you had a habit of paying late or defaulting, if you can prove the moneylender that you’re actively trying to raise your credit score, they might decide to give you a chance.
How each lender weighs the factors is entirely up to them. To some, it doesn’t matter if you pay late or not, as long as you don’t default; the contrary applies as well.
Each company has their limits, both minimum and maximum.
Try to flesh out these details when looking for a debt consolidation loan, some lenders will decline your application if the sum you’re asking is too low, so prepare in advance!
This is another important factor when applying for loans, not just debt consolidation.
Lenders will look at your financial stability, things like annual salary, length of employment and employment history.
You must be ready to provide evidence of your employment, your payslips, and your rental history.
A debt consolidation loan can be exactly what you need to get your credit score in shape again, and it will provide you with the breathing room to plan your financial moves in peace, away from collectors.
If you need some advice, call us now on 1300 138 188 or enquire with us today for a free consultation and assessment. We specialise in debt consolidation and have over 20 years of experience in the market.