Bad credit? Debt consolidation loans are an effective strategy to help you overcome bad credit and get back on the road to credit health. Does it seem strange that a finance company would offer someone with bad credit debt consolidation loans? There are many credit and finance agencies that offer specific bad credit debt consolidation loans that will help you get all your debts into one manageable monthly payment and begin to repair your credit.

There are two parts to that question. Let's address the first to begin with. The purpose of a debt consolidation loan is to combine all of the debts that you owe into one large debt. If you currently are carrying debt on several high interest credit cards, it makes sense to take out a lower interest loan for the total amount that you owe and use the money to pay off the balance of each credit card. Instead of making five payments each month at interest rates ranging from 9.9% to 29.5%, you'll be making one payment to the finance company - at rates as low as 6.2% interest (this morning's prime lending rate."

The second part of the question is the 'bad credit' debt consolidation loans part. Essentially, the loan is the exact same, as is the purpose - to get all your debts into one basket so that repayment is easier. The difference is in the interest rate. The lower your credit score, the more of a risk the lender assumes in loaning you money. Lenders offset the risk by charging you a higher interest rate when your credit score is lower. That interest rate is usually tied to the prime lending rate in some way - often 2-3 percentage points higher. The interest rate on a bad credit debt consolidation loan varies widely from lender to lender, though, so it's definitely in your best interest to shop around and get quotes from several different lenders before making a decision on a loan.

Besides the obvious benefit of lowering your monthly payments, a bad credit debt consolidation loan may have other benefits as well. Depending on the terms of the loan, it MAY reduce your overall debt. By trading in an adjustable rate revolving credit account for a fixed rate, lower interest fixed term loan (in other words, a loan that has a definite target repayment date), you could significantly decrease the interest charges that you'll pay on the money over the term of the loan. In addition, you've simplified your life - everything is due on one date in one payment. You'll even save money on postage every month!

As far as the effect on your credit score - your credit report will now show 5 paid off revolving credit accounts. It's a good idea to leave one or two of them open - both for emergency purposes and to benefit your available credit ratio (how much credit is available to you vs. how much debt you owe).

All in all, bad credit debt consolidation loans can be a very effective tool to help you lower your overall debt and increase your credit score.

@Copyrights 2005 - Bill A Smith is a credit counselor for . ACS provides credit counseling in the states of , , , , , . Through our partners, we cover , , , , , and .