Got bad credit?  Looking for a way out from bill collectors and phone calls at all hours of the night?  Look into a bad credit debt consolidation loan as one option.  These financial instruments are offered when another lending institution lends you money for your existing debts, and issues you a new loan payable to them.  These new bad credit debt consolidation loans usually include a small closing cost or transaction cost on them, which will increase the amount you owe, slightly.

However, they’re usually structured to have a longer payment term and a lower interest rate.  The reason for this is because of how compound interest works.  To see how much total interest your bad credit debt consolidation loans would run up, there’s a very simple formula:

Take 72 and divide it by the percentage interest rate you’re paying.  That’s how quickly the total interest paid will equal the average balance you keep on the loan.  So, if you’re holding $12,000 in debt, and are paying 18% on it, that will come out to 72/18 = 4 years.  Every 4 years, the cumulative interest will have doubled the amount you owe on your original debt.

By contrast, a longer term loan, say a bad credit debt consolidation loan, might have a 15 year term and interest rate of 10%; in the end you save money and you also get a much lower monthly payment.

Bad credit debt consolidation loans won’t make your debt go away instantly, and there are plenty of people who get in trouble with them, because they continue to use high interest rate credit cards while paying off the consolidation loans, and their spending habits get them back into a debt bog.  Make sure that you use the extra money saved to either pay down more of your debt, or to establish a rigorous savings program.

When shopping for bad credit debt consolidation loans, you should look into terms and conditions.  In particular, you’re almost certainly going to have to secure the loan with some piece of collateral; your car, your home, or something else of comparable value.  This is how they’ll lend money to you at all with your past credit history  – the threat that if you don’t pay, you’re going to lose something very important to you and your financial well being.

You’ll also want to talk to a credit counsellor; many of them can help you locate reliable bad credit debt consolidation loans that will do what you need done, and from lenders who don’t do predatory lending practices.  They will also counsel you on the types of behaviors you need to curb to use credit responsibly and avoid running into future debt problems in the future.

It’s a scary step, but a bad credit debt consolidation loan can help you get out of a mire of debt and get on with your life.