Eliminating Debt With a Bad Credit Score

Consolidate Credit Card Debt

Typically, when a consumer has high interest credit card debt that is starting to get out of control, there are tools available to help make this debt more manageable such as consolidation loans and balance-transfer credit cards. Unfortunately, these tools may not be available to someone who’s credit score is 600 or below. If this describes you, there are still a few ways that you may be able to get your high interest debt under control.

Personal Loans

Personal loans, if available, are a great way to consolidate some or all of your high interest credit card debt into a simple to manage, low interest rate installment loan. If your credit score is below 600 however, you may have trouble getting a personal loan without collateral or a co-signer. If you have equity in your automobile, you may be able to get a secured personal loan using your vehicle as collateral. Watch out though, if you are unable to repay the loan according to the terms, your vehicle may be repossessed by the bank.

If using a vehicle as collateral for a secured loan is not an option for you, you may have better luck getting a personal loan if someone with good credit agrees to co-sign for you. This means that someone you know will be putting their own personal credit on the line to help you get your debt under control. The benefits of using a personal loan to consolidate high interest credit card debt are significant, however, if you are putting your car, or your friend or family member’s credit at risk, to accomplish this, you should be absolutely determined to follow through repayment of your loan until the end.

Credit Counseling

A credit counselor can help to design a debt management plan that works for your circumstances. In many cases, the counseling agency will negotiate repayment terms with the credit card companies on your behalf. Typically, once the counselor has made arrangements, you will make one monthly payment to the agency each month, from which the agency will then disperse the proper payment to each participating credit card.

The benefits of using credit counseling are that you have an actual plan in place to become debt free and restore your credit, and these types of plans will usually save you some money on interest which means more of your payment goes towards the principal balance. Credit counseling does have a few drawbacks however. While on the plan, you may not use any credit cards. The credit card companies that have agreed to participate see that you are using the credit cards, they will withdraw from the agreement and you will again be obligated to the higher payment and interest rate. You should also consider the fees which your credit counseling agency charges. While in most cases you save more than what the agency charges, it is still important to consider their fees.


While the word bankruptcy carries a huge stigma, for certain consumers it may actually be the best solution. Bankruptcy can wipe out tens of thousands of dollars in debt, while certain bankruptcy filings may allow you to retain all of your assets. In many cases, your credit score may actually rebound in a matter of months, however a bankruptcy can continue to show on your credit report for up to 10 years and it may be very difficult to get new financing.

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