When you have low or bad credit, navigating which financial services can work for you might feel confusing or overwhelming. Fortunately, options are available to help you find financial services, products, and lenders. After all, everyone deserves financial freedom.
Use a personal loan to consolidate debt
A personal loan can be a great way to consolidate payments if you have multiple debts with high-interest rates. Personal loans can be either secured or unsecured. If you have a low or bad credit score, you may be more likely to be approved for a secured personal loan. Instead of paying late fees or missing due dates, bundling debts into one monthly payment at a lower interest rate with a personal loan is relatively simple, making personal loans a great way to manage your finances.
Consolidating your debts with a personal loan can also help you improve your credit score. Your credit utilization ratio—the amount of debt you have versus your credit limit—is reported by your lender to the main credit bureaus. So, suppose you pay off high-interest credit card debt using a personal loan and good credit card practices, for example. In that case, you may lower your credit utilization ratio.
- Start out using a secured credit card
A secured credit card is a great way to start building—or rebuilding—your credit and to easily purchase everyday essentials. With a secured card, you and your lender agree on an amount to put down as a deposit that will ultimately be your credit limit. The deposit also acts as collateral if you cannot make your payments.
Secured credit cards can be a valuable option for someone new to credit building or those who hope to improve their credit history. However, to make the most of this option, look for a secured card that reports your credit activity to all major credit bureaus.
Apply for a personal line of credit for borrowing flexibility
A line of credit is like a personal loan, but instead of getting the money in one lump sum, you have access to a revolving amount of funds you can use as needed. This form of credit can be a good option if you need flexibility in borrowing and repaying money.
Say that you may only need to borrow a small amount of money at one time for home repairs, but you know that you will need to borrow more in the future for renovations. Lenders that give borrowers a line of credit allow you to draw funds up to a maximum value when needed, typically referred to as a draw period. Eventually, during the repayment period, you repay the money you borrowed. Some lenders even let you borrow funds from the same line of credit, but if you’ve shown you can reasonably pay off your first line of credit, you should be eligible for another one soon after.
Furthermore, a personal line of credit may only charge interest on the money you borrow, not the entire line of credit. With this financial service, you can save money in the future since you’re only responsible for paying interest on the money you use.