A poor credit debt consolidation loan is no different from any other debt consolidation loan, with the exception that the interest rate charged will be higher, sometimes much higher, than someone who has average or good credit. Obviously, the poorer your credit rating the higher the interest rate will be. Most debt consolidation loans are secured by an asset, most likely your house, but in some cases your car if it's free and clear. There are unsecured consolidation loans but they aren't usually available for poor credit.



Many lenders are willing to fund this type of loan, because of profit margin… plain and simple. Besides accumulated interest there is always the possibility that you will end up paying even more in late fees, should your get behind on the loan. After all, financial institutions are in the business to make money. And in the worst case scenario if you miss more than a few payments you can lose your home.

Depending on your total debt, a poor credit consolidation loan could still be in your best interest. Why? In a nutshell, the total interest payment could actually be a bit lower than what you are paying for all of the payments, combined.

Even if the interest is higher, you will only be paying one payment per month, as opposed to several. Multiple, high interest, credit card payments can easily exceed hundreds of dollars, each month. Chances are, even with a high interest rate, the new payment will be considerably lower.

The term of the consolidation loan is usually for a longer length of time and that decreases the payment amount as well.

Thanks to the convenience of the Internet, anyone can apply for a poor credit consolidation loan from the comfort of home. There is also the option of visiting your local financial institution, as well.

As with any type of loan, it is recommended that you ‘shop around' for the best interest rate and loan terms. As anxious as you are to consolidate your debt, it is not always advisable to go with the first offer. Look at the length of the loan, loan origination fees, application fees, and prepayment penalty - if you pay off the loan before you sell the house will there be a penalty?

As your credit rating improves, the value of real estate increases, and home mortgage rates fall you may want to refinance your mortgage completely, so you don't want a hefty prepayment penalty.

After you've received the loan and paid off your loans, cancel all but one or two cards. It's very tempting to start using a card that has no balance, if it's closed you can't.

Another benefit of a consolidation loan is that it can improve your credit rating in the long term because you've eliminated debt. Keep making the payments on time, pay off any remaining secured debt or at least make the payments on time, and close all but one or two credit cards and you'll be on your way to changing your credit rating from poor to good.