Debt Consolidation for Bad Credit [How I Saved $3,400 on a 560 FICO]

You know all the tired, traditional debt payoff
strategies but they all mean you’re still paying thousands in interest over years of
payments. By the end of this video, you’ll know how
to use a debt consolidation loan to save money and cut years from your payments. In fact, I used this same process to save
over $3,400 and pay off $15,000 in debt after destroying my credit in 2009. Joseph Hogue here with the Let’s Talk Money
YouTube channel. I want to send a special shout out to everyone
in the community, thank you for taking a part of your day to be here. If you’re not part of the community yet,
just click that little red subscribe button. Today’s video is the fifth in our debt payoff
series, an entire series on ditching your debt from creating those goals that are going
to motivate you to some tricks I’ve learned to pay off debt. Think of it like a TV series, at the end of
this season, you will have all the tools you need to finally get out from under that crushing
debt. So make sure you subscribe so you don’t
miss any of the episodes. I’ll also be putting these videos in a special
list in the Playlists section of the channel and link to it in the video description below
so you can watch the series in order. I love the two debt payoff strategies we saw
in the previous video, two ways to pay off your debt that save thousands in interest
and motivate you every step of the way. But there’s another way to pay off your
debt that I wanted to keep for its own video. I used it to get my debt under control and
save $3,400 in 2009. It helped increase my credit score and it
will work for you but it’s sooo controversial. In fact, it’s probably the most controversial
thing we’ll talk about in our debt payoff series. I’m talking about debt consolidation, taking
out one large loan to pay off your high-interest credit cards and other debt. The average American has $15,000 in credit
card debt at a rate of 18% – that means they’re paying about $225 a month in interest alone. Not only that but they also have $37,000 in
other debt not including a mortgage. That’s student loans, car loans and other
debt that cost another $300 a month in interest – that’s over $500 a month lost just on
the interest or about $6,000 a year down the drain. After that, how much is left to actually pay
down the debt? Zero, that’s how much. I’ve been there. In 2009, I was bankrupt and owed tens of thousands
in credit card debt and other loans. I was barely keeping up with the interest
payments. I was able to get a personal loan for $15,000
to pay off credit cards and a car loan. The interest rate of 13% on the consolidation
loan was well under the 18% I was paying on the debt so I was immediately saving $40 a
month on payments. Not only did paying just one bill a month
instead of three make it easier to manage but I still made the same monthly payment
and ended up saving $3,453 in interest and paying the debt off almost a year early. But debt consolidation is controversial, I
get it. Consolidation is like giving methadone to
a heroin addict. You’re giving them one drug to get them
off another and while methadone is much less addictive and dangerous, there are risks. It’s the same with debt consolidation. You’re getting a loan to pay off other debts. You’re going to save money on interest and
make your finances more manageable but there are also risks. If you use the money from the personal loan
just to go shopping instead of paying off your loans, or even worse yet, you pay off
your credit cards but then max them out again, now you’ve got twice as much debt. A consolidation loan is like getting a pet
alligator to eat the pet snake that got too big and is roaming the house. Get the alligator, let it do its job…but
then get rid of it fast. So that was a really long lead in but I just
want to make sure you know the risks and how to use debt consolidation without falling
deeper into debt. If you still want to take control of your
debt, to save money and pay it off faster, I’m going to walk you through how to get
the best rate possible on a personal loan. If you decide consolidation isn’t for you,
just skip to the next video in our series and I’ll show you how to boost your credit
score so you never have to worry about rates again So how do you get a debt consolidation loan? I’m going to walk through the process on
one of the personal loan sites I’ve used. An important thing to remember is to apply
for a loan on at least a few sites to see which offers the best rate. The sites do a soft-pull of your credit so
it won’t affect your score. I’ve got a comparison list of consolidation
loan sites that I’ll link to in the video description below. Click through and check out a few of the sites
because you really do want to shop around to get the best deal possible. Your first step is just to list out your debts,
how much you owe and the interest rate on each. Make sure you get every single one on the
list. This includes credit cards, car loans, personal
loans, payday loans, everything plus the interest rate. This is going to be important because you
might not want to consolidate all your debt. Usually your mortgage is at a pretty low rate
so you won’t want to use another loan to pay it off. The idea here is that you’re going to be
paying off high-rate debt with a lower-rate loan. Next, click through to one of the loan sites
in the comparison list on the blog. I’m going to use as a
comparison because I’ve used them twice for loans. I used them first for a consolidation loan
and then again for a loan to remodel our home. Depending on your credit score, you’ll qualify
on some loan sites but not others so check out the list and shop around a little. Here we are on the personal loans website. I’ll go through the process but it’s really
straight forward and takes less than five minutes. The first thing you’ll see is this slider
for how much you want to borrow and the get started button. The amount doesn’t really matter right now,
just put in your email and click to get started. The next screen is some basic information
like your name and birth date to make sure you’re at least 18 years old. After this first step, you’ll be asked for
contact information and verification to protect your identity. You’ll put in your address, employment information,
a driver’s license and your social security number. Again, this is so the site can do a soft-pull
of your credit. It’s like what happens when you get pre-approved
for a loan. It allows them to set an interest rate but
doesn’t hurt your credit score like a hard pull. Approval is instant and the website is going
to come back with a quote for an interest rate. It will also show you the exact amount you’ll
pay each month. No hidden fees here and there’s no cost
to getting a loan, that’s why I like this site versus some others. Now if the rate on your loan is less than
what you’re paying on some of your debts, then you’re going to be saving money. If you get a quote of 14% on your consolidation
loan and you have three debts that charge interest of between 15% to 24% then paying
those off will lower your monthly payment and save money. If you agree to the terms of the consolidation
loan, you’ll link up your bank account and can usually receive your loan within a few
days. Some people might be asked to email copies
of their paycheck or to verify employment but it’s pretty rare. Your monthly payment on the new loan is on
a fixed rate and the same every month, one of the great things about a personal loan
versus credit cards. You’ll know exactly how much you owe every
month and you’ll be on your way to paying the debt off. The payment will come directly out of your
bank account each month and on the same day. One of the hidden benefits of debt consolidation
is that it goes on your credit report as a non-revolving debt. This means you have a payoff date and a fixed
payment and is different from revolving debt like credit cards with payments that go up
and down. The people that make your credit score hate
that revolving credit card debt and it’s one of the things that really hurts your FICO
score. I’ve seen people get a 30 or 40 point bump
in their credit score by paying off their cards with a personal loan. We’re going to be talking a lot about credit
scores in our next few videos in the debt series. I’m going to show you exactly how to check
your credit, how to boost your score and give you some hacks you can use to get the best
rates on any loan. Make sure you click on that subscribe button
so you don’t miss the rest of the videos. Click on the link just below this video to
watch the entire debt payoff plan and get out from under your debt.

11 comments on “Debt Consolidation for Bad Credit [How I Saved $3,400 on a 560 FICO]”

  1. Let's Talk Money! with Joseph Hogue, CFA says:

    What do you think are the benefits and disadvantages of using debt consolidation loans?

  2. Ken Kernen says:

    Haven't had to consolidate debt, but I appreciate the valuable insight into what to do and what to consider. Thanks Joseph!

  3. K D says:

    Actually I've been considering consolidating my three credit cards from 20%… Gave them a call and they offered me 0% on two cards and 5% on my highest card… Which actually averaged out to 2.5%.

    That's down from my 18.99% to 20% on the cards.

    Tomorrow I'm going to get them a call and get the loan. Thank you for talking about the pros and cons! The only con is if you use the money on something else ,or you rack your cards again.

  4. TruFinancials says:

    To be honest, I wasn't the biggest fan of consolidating debt a while back because I feel as you mentioned giving someone an out, but not really. And that most people will reuse that old paid off credit. But if someone is working hard on the process of getting out of debt and is really in it, I can see it being helpful in the amount of interest it can save them. Great video, so much value!

  5. Chris Gotski says:

    Are there early payoff penalties on debt consolidation loans?

  6. Rose Stachnik says:

    what do you think about debt relief programs

  7. may phos says:

    I just got a reply " unfortunately we were not able to connect you with a lender or a lender partner" than it asked for my deposit information/ Bank formation???

  8. Heavy Metalworks says:

    Hope your joking about using personal loans website. There are a joke. for the heck of it I check on a loan they offered me a loan with 29% apr . My other personal loan is at 9%. what a joke I hope they are paying you to make this for them.

  9. ptgeek symptom says:

    The link for Lenders , does that work for Canada ?

  10. Steve Abrams says:

    Hi Joseph. Thank you for the value you bring. Do you know anything about Credex Funding or New Day Funding?

  11. addison Fox says:

    no no no

Leave a Reply

Your email address will not be published. Required fields are marked *