Consolidating debt bad credit history
Although each lender will probably require different documentation depending on your history, the most commonly required pieces of information include a letter of employment, two months' worth of statements for each credit card or loan you wish to pay off, and letters from creditors or repayment agencies.
If you have a good payment history with a bank, credit union or credit card company, asking that institution about a debt consolidation loan should be your first step.
They also tend to have higher interest rates and lower qualifying amounts.
Even so, the interest rates are still typically less than the rates on credit cards. “Typically, the loan has to be paid off in three to five years,” says Harrine Freeman, CEO and owner of H. Freeman Enterprises, a credit repair and credit-counseling service in Bethesda, Md., and author of “How to Get Out of Debt.” These types of loans don’t erase the debt; they simply transfer all your debts to a different lender or type of loan.
Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.
(In circumstances where you need actual debt relief or don't qualify for loans, it may be best to look into a debt settlement rather than, or in conjunction with, a debt consolidation.
Debt settlement aims to reduce your obligations rather than just reducing the number of creditors.
Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.Secured loans are backed by an asset of the borrower’s, such as a house or a car, that works as collateral for the loan.More traditional, unsecured debt consolidation loans, which are not backed by assets, can be more difficult to obtain.This amounts to a total savings of ,371.52 (,750 for payments and ,621.52 in interest).
Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.