Does this story sound familiar? You could be anyone…a single college grad living in a big city, the head of a family in the suburbs, or a retiree living in the house you own. But in the years before the Great Recession you rode the wave of cheap credit that swept over America. You had multiple credit cards, not just because you actively sought them out but because they arrived unsolicited in the mail. How could you say “no” to a credit line of $5,000 or even $10,000? Banks you never heard of were offering you credit and you accepted.

Perhaps you took out a mortgage for which you were not well qualified. Or perhaps you maintained good credit but lost your job through no fault of your own. But the reality is that now you face overwhelming debt. You’ve done your research and you think that a bad credit debt consolidation loan may be the answer for you.

It sounds simple-you take out one low-interest loan and use the cash to pay off all of your other high-interest loans. Then you have only one loan to pay off and you save money.

But what kind of products or services are available to a person with bad credit who needs to consolidate their debt? Is a bad credit debt consolidation loan the best solution? You have choices, and if you do your homework one might be right for you. Here are six things to keep in mind:

1. Remember that credit consolidation has become a big business. According to the U.S. Federal Reserve, over the past few years the credit card delinquency rate has hit 6.5% from a low of 3.97% in 2006. Residential mortgage delinquency rates have soared to 7.91% from a low of 1.38% in 2004. There are a lot of people in the same boat as you, and scammers are preying upon the unwary.

2. Payday loans may be a reasonable choice if you have poor credit and need a small amount of cash quickly for an emergency, but they are a terrible way to repay other debt. Payday loans are very high interest; typically you will pay 500% APR or more for a fourteen-day payday loan. That’s more expensive than a credit card cash advance fee!

3. When you contact a debt consolidation company, beware of fees they demand that you pay in advance. It is against the law for a company to promise you a loan and ask you to pay a fee before they give you the loan. As with any loan there will be fees involved, but these are typically deducted from the loan advance. Avoid any offer that involves a fee in advance.

4. Legitimate lenders never guarantee or promise that you will receive a loan before you have gone through the application process, especially if you have bad credit or no credit.

5. Do not provide your Social Security number, credit card numbers, bank account information, or other private information until you are certain that you are dealing with a reputable company.

6. Know your interest rates! The concept behind a debt consolidation loan is that you pay off a bundle of loans (such as your credit cards) with one loan at a lower interest rate. Do the math and make sure the interest rate you are getting is lower than your current interest rates. Also read the fine print and be sure you understand under what circumstances your lender is allowed to raise your interest rate.

It has become increasingly difficult to get a loan if you have bad credit so getting a debt consolidation loan can be a challenge. If you are a homeowner and have equity you may want to consider getting a home equity loan for debt consolidation. Again, if your credit is bad this can be a challenge but it’s worth a try since home equity loans are at historically low levels.

If you have bad credit and your primary problem is a large amount of credit card debt then you may consider using a debt settlement or debt management service.

Get more information about your rights and responsibilities as a debt consolidation loan consumer by visiting the websites of the Federal Trade Commission or your local Better Business Bureau.

Author Bio: ConsumerFinanceReport.com features an extensive article library covering a wide range of personal finance issues and topics, such as the article on debt consolidation options for people with bad credit. Additional sections include advice on how consumers can best pay off debt.

Category: Finances
Keywords: debt consolidation, bad credit