How Do I Consolidate Bills With Bad Credit?

Bad credit can negatively affect not only your financial well-being, but also your personal and professional life. Bad credit scores can prevent you from gaining employment or even finding an apartment. Worse, bad credit will prevent you from getting financing at decent interest rates. If you have poor credit and you need to consolidate bills, you'll face a tough challenge. If approved, you'll most likely be hit with much higher interest rates and fees than well-qualified customers.

Instructions

1

Pull your credit report before approaching lenders for consolidation programs. Visit Annual Credit Report's website for a free copy of your report from all three bureaus: TransUnion, Experian and Equifax. Also, pay the additional fee to get your FICO score, a three-digit number between 300 and 850. Your score will tell you just how bad your report is. Scores below 600 are quite poor.

2

Clean up your worst credit problems, if possible, before applying for consolidation programs. Most lenders won't finance you if most of your accounts are past due and in arrears. Try to bring accounts current and pay past-due balances. This will go a long way toward showing your commitment to debt repayment.

3

Calculate your income ratios. Lenders use two calculations to calculate your ability to repay a loan: debt-to-income ratio (DIR) and disposable income (DI). To calculate DIR, divide the sum of all your monthly expenses by your total gross income. Lenders will look for a DIR below 40 percent before financing a customer with poor credit. To calculate DI, simply subtract the sum of all monthly expenses from your total net monthly income. Lenders usually want to see at least $500 in disposable income.

4

Research subprime lending companies, such as Wells Fargo Financial, CitiFinancial and HSBC Financial. These companies often do business with customers who have credit issues. Don't apply at local banks and credit unions, as these companies usually do business only with customers who have sterling credit.

5

Fill out applications for consolidation at three or four lenders. Bring copies of all account statements to be consolidated. Also bring your income documents. This will hopefully help to expedite a preapproval.

6

Review each consolidation offer carefully. You'll undoubtedly be forced to pay much higher interest rates and fees than normal. You must decide whether the benefits of the consolidation outweigh the often-hefty costs.