It is not difficult to develop a poor credit rating with so many factors contributing to a slide in credit scores even over a relatively short period of time. But while it might seem strange, securing personal loans with bad credit is actually a proactive move to rebuilding credit ratings.
It would seem that seeking to create another debt in order to repay debts would be counter-productive. There is a certain logic to that idea, of course, but as long as an applicant can get loan approval with poor credit scores, there is always the chance to secure the funds needed to alleviate the financial burden.
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Securing loan approval is the key to the plan, but this is not too difficult to realize when an application is in good order, and the sum of money sought is reasonable. It is usually a good idea to seek a small personal loan, of perhaps $5,000, to make a real impact on the overall debt burden.
But what are the advantages of getting a loan in these circumstances? Here are 3 of the principle benefits.
1. Consolidation To Clear Existing Debts
Once the funds from a loan are secured, they can be used to clear some or all of the existing debts. While getting personal loans with bad credit does create a new debt, paying off older ones always has a positive overall impact.
For example, a borrower may have 5 existing debts with balances of $2,000, $3,000, $3,500, $4,000 and $4,500 - so, they face a total debt of $17,000. Applying for just a $5,000 loan, a low sum that makes approval with poor credit scores quite likely, means the debt can be cut by about 30%.
As long as the repayments on the new $5,000 personal loan are lower than those for the $2,000 and $3,000 loans combined, extra cash is freed up and the financial burden is lightened.
2. Rebuild Your Credit Reputation
The spin-off enjoyed from actually clearing a debt or two is that your credit score increases. This is because with every debt repaid, regardless of whether it was done through a consolidation loan or not, is marked down in your credit history. So, getting a personal loan with bad credit is often well worth the effort.
The system works like this: the score is increased because as far as the credit agency is concerned a debt has been repaid in full. This immediately pushes the score upwards. As the credit score continues to climb, your credit reputation steadily increases too, until eventually seeking loan approval with poor credit scores becomes a thing of the past.
As a consequence, it is possible to get bigger personal loans at lower interest rates, and a much greater chance of being approved.
3. Making Future Approval More Likely
What must be considered when dealing with bad credit is that lenders generally prefer to avoid bad credit borrowers. As a result, having a strong credit rating means they are much more receptive, and the challenges that come with seeking personal loans with bad credit disappear.
Of course, while approval with poor credit scores might become a thing of the past, guaranteed approval is still going to be elusive. That is something that can never be promised, as issues like income and affordability override any issue over credit scores.
But the important fact is that approval for larger personal loans with better terms become a greater possibility than before, and that can mean further alleviation of the debt burden.
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