People with bad credit who are desperately hunting around to find unsecured debt consolidation loans are truly looking for the proverbial needle in a haystack these days.
In years gone by before the recent global economic slowdown, such loans were available, but now they are a thing of the past with most traditional lenders. Because of the total shakedown of all financial institutions, most lenders will not offer unsecured debt consolidation unless the person applying for it has near-perfect credit.
Hard To Get Loans for People with Bad Credit
That is bad news for some of the people who Google “debt consolidation loan” online (about 10 million such searches are done every month!). Even a secured debt consolidation loan is difficult to line up nowadays; an unsecured one is almost a pipe dream.
Granted, some use the term “debt consolidation loan” to mean many different approaches, from home equity loans to consumer credit counseling and debt settlement, but in the classic sense of the term — borrowing money to pay off debts by consolidating them into one payment — unsecured versions of this type of loan are almost impossible to find.
Thus, the cruel catch-22 sets in: the people who get approved for these loans have good credit and numerous assets, yet those types of people rarely need a loan to make ends meet. On the other hand, people who have abused credit usually are not able to qualify for loans that would help them to climb out of a very deep hole.
And, to add insult to injury, if they do qualify for an unsecured loan, they will have to pay sky-high rates that could leave them in worse financial shape than what they started in.
Unsecured Debt Consolidation Options
Even with these qualifications, there are two ways that people are snagging unsecured debt consolidation loans for bad credit:
- Some 401Ks allow their holders to borrow a certain percentage from them. Many people are taking advantage of this type of provision to make their own debt consolidation. It is wise to check in with a financial professional before making this move, because there could be difficult tax ramifications for you the next year.
- Others who have bad credit are turning to a relatively new solution: peer-to-peer lending.
In this arrangement, people are matched with investors who can lend them money (usually $25,000 or less) and then pay them back over a certain time span.
Most people approved for this type of loan have a decent credit score, although some with low credit ratings are getting approved. In some of those instances, they are borrowing just a small amount from several different investors to add up to one debt consolidation loan.