Ways to get out of the “bad credit spiral”

When credit became easier to get hold of many people just kept borrowing more and more money. Transferring balances from credit card to credit card, taking out loans, using overdraft facilities, it was an easy thing to do. When the recession hit, people were being made redundant or at best weren’t getting a pay increase. With the other costs of living such as food and energy increasing rapidly, money has become short for many. The debts however mount up rapidly and all of a sudden people were finding themselves in a lot of debt without a way of repaying their monthly outgoings.

Unfortunately this has meant that people have got into a lot of debt and maybe missed credit repayments. They would like to consolidate the debt they have but find it impossible to get a loan due to their poor credit history. This is a bad credit spiral: The debts are increasing whilst there is no way to reduce the repayments by consolidating the debts into one monthly manageable repayment. High street lenders won’t lend you money because you have defaulted on previous repayments so you are stuck with high outgoings and less money coming in that previously.

There are a number of ways you can help yourself get out of this downwards credit spiral though and bad credit loans are one of them. These loans are similar to other loans offered by high street money lenders but there is one big difference – the interest. Because the risk the money lender is taking by lending you the money is higher, the more interest they will charge you. This can go from 18% to over 180%, even higher with some lenders.

The benefits of bad credit loans are numerous however. Whilst you are able to consolidate all your debts into one payment you will have more disposable income each month so are less likely to have to keep borrowing more money. Furthermore, whilst repaying your bad credit loan you will be rebuilding your credit score, giving you a much more favourable credit history should you want to borrow money again in the future.

Other ways you can try and get out of a bad credit spiral is to get a specially designed credit card. These were intended for people with bad credit to help them build up their credit profile again. As with bad credit loans, the interest is higher than most other credit cards but if you make your repayment on time this will not affect you.

Other options include debt management plans or IVAs but serious consideration should be given before committing to these. It is advisable to seek financial advice if you find yourself in a bad credit spiral.

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