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People find it challenging to get out of debt when they have bad credit history and no money set aside.

Cutting expenses to the bones and boosting your income can free up resources to retire your obligations. However, this approach is a long, hard grind.

Two other options offer a glimmer of hope.

First, debt relief programs provide the opportunity to pay less than the full amount owed. Also, having an adverse history works to your advantage.

Second, debt consolidation loans can lower your monthly payments by extending the schedule further into the future. However, getting approved is not assured. Working with online lenders and showing the ability to afford each installment improves your chances.

Debt Relief Programs for Bad Credit

Debt relief programs are the primary way that people with bad credit and no money can get out of their obligations. Unlike with loans, having adverse payment history appearing on your consumer report helps rather than hurts your cause.

So, how does having a derogatory history help? Debt relief companies use two bargaining tactics in combination to negotiate a settlement for less than what you owe on your credit cards, medical bills, and other obligations.

  1. Demonstrate financial hardship by stopping all payments to creditors
  2. Fund an escrow account using the diverted money

Without Paying

Do you qualify for debt relief? You may be able to make the problem go away without paying the full balance owed. Eligible borrowers have a bad credit history, sufficient income to fund an escrow account equaling one-third of what their obligation, and owe more than $10,000 in unsecured debt.

Debt relief programs can be a better alternative because you reduce what you must pay to creditors – once you settle. Individuals with little or no money to spare benefit most when lenders agree to forgive a large portion of the outstanding balance in exchange for a partial immediate payment. Creditors are most likely to agree to such a deal when you are delinquent on all of your accounts because it shows hardship.

Effect on Credit

People with adverse history on their consumer report need not worry about how debt relief programs affect their credit score. Their record is already negative, and most lenders will not approve a loan application because of their weak history – before they begin the settlement process.

However, you should know how debt relief would affect credit. There are three consequences.

  1. Accounts will show as delinquent when you stop making payments
  2. A “Paid Settled” status will appear on your report after reaching a settlement
  3. All negative marks disappear seven years after the date of first delinquency

People with bad credit and no money feel these consequences the least because their accounts are already delinquent, or in collections. Plus, the clock began ticking sometime in the past. Therefore, the dates when the negative marks disappear are much closer.

Unsecured Debt Consolidation Loans

Unsecured debt consolidation loans are a less desirable way to get out of debt when you have bad credit and no money. First, when you get a loan to pay off a debt, you are not reducing the amount you owe – you are only restructuring the terms. Second, most lenders shy away from approving anyone with severe derogatory marks on their consumer report.

However, many people still want to pursue this option because the lower monthly payments allow them to survive in the short-term, and then eventually retire the obligation to restore their good name. Working with agile online companies and showing the ability to afford the new monthly installments are the keys to success.

Online Decision

Request an unsecured debt consolidation loan here to get an online decision. Individuals with bad credit history find that online lenders are more lenient with subprime borrowers and place a higher weight on the affordability of the proposed monthly payment. Traditional brick-and-mortar banks and credit unions focus on prime applicants.

  • Online decisions can lead to better approval odds. Many web-based companies specialize in helping people get out of debt by combining obligations into a single, more affordable payment. These finance companies know that borrowers behave more responsibly when installments are more manageable.
  • Online decisions focus more on your earnings and employment. Stable work history and strong earnings allow web-based companies to offer a second chance to people who fell behind through no fault of their own such as bouts with unemployment or disability.

Personal Loans

Personal loans for debt consolidation are the primary way folks with bad credit can borrow money without pledging any asset to back the obligation. Unsecured personal loans do not require collateral. Instead, they rely on your signature promise to repay the lender on time until the responsibility is retired.

Personal loan companies will consider three main qualifying criteria.

  1. Credit scores predict the likelihood of future default. Lenders use these ratings to establish the interest rate, maximum term length, and maximum DTI
  2. Debt-to-income (DTI) ratio provides a measure of affordability for the proposed monthly installment. DTI equals monthly debt service payments divided by monthly income
  3. Employment verifications and earnings history establish whether you will have enough money coming in to repay the creditor over the entire term

Direct Lenders

Looking for debt consolidation loans from direct lenders is an ineffective way for people with bad credit and no money to pay off obligations. Your approval odds are already very low – especially if you have a low income as well. Why make things worse by limiting your search by specifying “no brokers” or “direct lenders”?

Working with direct lenders when approval odds are low means filling out multiple applications and then having numerous hard inquiries appear on your consumer report. Each hard inquiry lowers your credit score by about 5 points. Your qualifications are worsening, and your approval odds sink with each attempt!

Avoid the direct lender trap by working through an online lead broker (as you do with the affiliate partner supporting this article). You complete a single online form. The lead company logs a soft inquiry because you are requesting contact from interested finance companies, rather than completing an application. An extensive network of creditors sees your profile and bids on the rights to connect with you.

Guaranteed Approval

Guaranteed debt consolidation loans for borrowers with a bad credit history are a gateway to fraud. You do not want to be the victim of a scam. No legitimate finance company can promise approval to all applicants regardless of their borrowing credentials – not even the government. Plus, people with no money in savings to handle emergency needs are even harder to qualify.

Legitimate companies will display critical disclosures that let you know they are real.

  • Minimum amounts vary by state
  • Approval and terms will vary based on credit determination and state law
  • Submitting your information online does not guarantee approval
  • All loans are subject to credit review and approval

Therefore, run the other way if you see a lender over-promising your ability to qualify. Be especially on guard if they ask for upfront application fees, or ask you to send money via gift cards.