Tuesday, January 04, 2011

How To Avoid Loans For People With Bad Credit - 3 Good Tips

Having a poor credit rating is no fun at all. Unfortunately, most of us manage to get into that situation by going a little wild with the credit cards and ultimately not being able to pay them off. Some people think that by getting a loan and paying off the balances, all will be well. This is wrong thinking. Here are three simple reasons why you should not take out a loan for people with bad credit - especially if you are one of those people...

First, you are likely to simply get deeper in the hole. While there are people who take out a consolidation loan and pay off all their outstanding debts and keep it that way, they are in the minority. Most of us pay off the credit cards, enjoy a brief season of a month or two of only having the loan payment to make, and then slowly give ourselves permission to start running those cards back up to their limits. Within a year or so, we not only have a mountain of credit card debt, but also a loan to pay off and no way to get any further financial assistance.

Second, if your credit is that bad, you are going to pay through the nose for a loan. You will be considered a high risk, and the interest rates and terms of the loan contract will reflect that. If you look closely, you may find that the rate of interest applied to the loan is higher than the interest rate on any of the credit cards you currently have in your possession. In short, you will end up paying out more money by taking out the loan and paying off the cards. You will come out ahead to cut up the cards and make payment arrangements with your creditors.

Third, taking out a loan when your credit is already in the toilet is only putting a band-aid on a gaping wound. Instead of trying to quickly fix your credit problem by taking out a loan, you need to address the habits that got you into the mess in the first place. Instead of looking for loans, find a credit counseling agency in your city and make an appointment. There you will find help in developing the kind of habits that will allow you to regain your good credit and become financially stable.

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