This unbiased and completely unsponsored article explains how to consolidate debt with bad credit.  If you have high credit card rates and loan payments that you are having trouble paying, a consolidation loan may be an easy and effective way to ensure that you can pay your debts off while improving your credit.

Consolidation loans are typically one of the easiest loans to be approved for.  People who have bad credit often find that their requests for consolidation loans are approved without a problem after they present the information outlined in the steps below.  Consolidation debt is typically secured.  This means that the loan is provided against something with tangible value.  Please review Mahalo's short article on consolidation debt if you are unsure of the differences between a consolidated secured loan and an unsecured loan.http://moneycentral.msn.com/personal-finance/calculators/Consolidate_Your_Debt_Payment_calculator/home.aspx

After following the steps below, you will learn how to consolidate debt with bad credit.  These steps will help you understand what bad credit is and how you can avoid it.  Then, by following a process that involves setting up a hassle free budget and finally meeting with lending providers, you will be approved for a consolidated debt even if you have bad credit.

There are two very general forms of credit.  To understand bad credit, one must also understand good credit.

The video above features Martin Louis and provides several real world examples that clearly illustrate examples of both good and bad credit.  Bad credit is debt that is incurred when purchasing products or services that do not appreciate, do not have a tangible value or do not hold their value over a long period of time.

Some examples of bad credit debt include:

• 1. Paying for dinner on a credit card and not paying the balance of the credit card before the end of the month.
  2. Incurring interest fees on bank overdraft balances.
  3. Buying a car that forces you into high payments over a long term.
  4. Paying utility bills with a line of credit.

Some examples of good credit include:

• 1. A student loan.
  2. Mortgages for houses, condos or property.
  3. Reasonably valued car loans.
  4. In low rate markets, personal unsecured loans that are taken with the goal of earning money through other investments.

Generally, bad credit costs you money.  Good credit either does not cost you any money, makes you money, or helps you finance something (such as property) that will appreciate.  Understanding the difference between good debt vs bad debt is a an important aspect to receiving a consolidation loan with bad credit.  If you can prove to lenders that a portion of the debt you have is good debt, lenders may either negate this debt or use the appreciation and income that it receives to increase your base income.http://moneycentral.msn.com/content/Savinganddebt/Managedebt/P150813.asp

Once you understand what constitutes good and bad credit, you're ready to start identifying your real credit issues and then apply for a consolidation loan.

Now that you know what the difference between bad credit and good credit is, you can identify each of these and begin to prepare to get a consolidation loan with bad credit.  The following steps will help you create important documents and collect information that consolidation loan lenders will use to improve your credit score and reduce your overall credit risk.

1. Create a spreadsheet on your computer or with a pencil and paper. Start by listing all of your sources of income in a column.  Then, list all of your regular monthly expenses such as your utility bills, phone bills, etc.  Next, list all of your debts such as your mortgage, car payments, etc.  If you're not comfortable creating a spreadsheet, using an online debt consolidation worksheet can provide a general view of your basic financial situation.http://www.sayplanning.com/saygoodcredit/wkst.html

2. Label good credit, bad credit, good expenses, and bad expenses. Using step 1 (above) as a guide, highlight good expenses and bad expenses on your income and expenses spreadsheet.  This will show you (and the lending providers that you will visit in the next step) what good debt you have and what bad debt you have.  Bad debt is the first type of debt that should be consolidated.  Since bad credit usually limits the amount of money that a lending provider will loan, knowing which debt to consolidate first is an important realization.

3. Set up a simple, easy to follow budget. An easy to follow budget is an important part of consolidating debt with bad credit.  Being able to prove that you're are in control of your finances and have a good repayment plan can reduce the risk that you pose to the lending provider.  The Stackbacks System of budgeting is an automated, free and easy system of budgeting that works by depositing all of your income into a single account and paying all of your regular monthly bills from that account.  Money that is left over after paying your regular bill payments is transferred to a second free consumable checking account.  From this account, you pay for gasoline, groceries, etc.  This easy to use budget will ensure that you pay all of your regular bills on time and that you have full control over your disposable income.http://stackbacks.com/blog/stackbacks-automated-budget-system/

4. Review your spreadsheet and budget with a free, trusted financial adviser. It is important to have help.  Even the wealthiest people who have full and complete understanding of their money and how it works seek guidance.  As frequently as possible, review your decisions, budgets, and your general financial path with people whom you trust.  While it may be uncomfortable to talk about your finances with people, receiving as much input and education as soon as possible is an important step to consolidate your debt with bad credit.  Suzy Orman (a financial television personality) regularly comments that all good financial advisers have your best interests at heart.http://finance.yahoo.com/expert/article/moneymatters/11727

5. Obtain a free credit report or an inexpensive credit report to review your credit history. There are a number of fraudulent free credit report services.  However, there are a few places where you can obtain a truly free and safe credit report from.  The best choice is your primary financial institution.  If you do not have a long or developed history with your bank, they may charge you for a printed copy of your report.  However, many banks will request your credit report (using their computer) and can let you see on the screen exactly what is there.  You will be able to see items such as credit card balances, repayment histories and importantly, claims that companies have made against you that drastically reduce your credit score.http://consumerist.com/2009/11/your-credit-report-isnt-the-only-report-you-should-monitor.html

6. Call each and every company who has entered a negative claim on your credit report. Set up repayment terms or ask them if there is any way that they will retract their claim.  Companies that regularly post items to individual credit reports often use automated processes that can be corrected when needed.  If you can prove that you're a good customer who was treated unfairly (in any way), then the company may write a letter to the credit borough on your behalf requesting that the claim be removed.

7. Develop good spending and payment habits. Step 3 asked you to set up a clear, easy to follow budget.  The 3rd point above asked you to setup a simple system to ensure that bills were paid on time, every time.  Credit history is an important part of consolidation debt and with good  spending and payment habits, receiving a consolidation loan will be easy.

Now that you have completed each of the steps above, you know what the difference is between good debt and bad debt is.  You have a plan to repair your bad credit by identifying your income and expenses.  You're following a simple, easy to maintain budget and have a clear history of the past and a view toward the future.  All of these things will help you to receive a consolidation loan in spite of your bad credit.

You have a plan and you're taking action on that plan.  All that is left to do is to do is to meet with lending providers, review your history with them and review their terms.  Before proceeding, realize that if your consolidation loan is denied that with your new plan, it is only a matter of time before your consolidation loan will be approved.  Plan to meet with lending providers every 3 months to review your history and re-request the loan.  Bad credit history is formed over a period of time and can be solved with a good plan, plus time.  

Here are some specific tips to help you apply for a consolidation loan with bad credit:

1. Collect all of the information that you collected and created in steps 1 and 2 above into a "consolidation loan folder".  This will make it easy for you to provider lenders with the exact information they need at a moments notice.
2. Never give your personal or financial information to someone that you do not implicitly trust.
3. Meet with as many lending providers as you can talk with, but only apply to a select few.  Every time you apply for credit, your credit rating decreases slightly.http://www.myfico.com/CreditEducation/CreditInquiries.aspx
4. Review the consolidation debt products and services from a variety of lending providers.  Many providers have unique products that are designed to help people rebuild credit quickly.
5. Do not embellish any facts and always be sure that you can afford to make the payments on any new loan that you receive.  The financial crises of 2009 was a result of many individuals overextending their expenses beyond their income.
6. Always read the fine print and ensure that you completely understand each statement on a contract.  If you don't understand something, ask the person who presented you with the contract to explain it to you and then ask another trusted financial adviser to ensure that you have been given good advice.
7. Take your time.  Never feel pressure to sign a contract and try not to say "yes" to anything that you do not want.

The content in this page is not a substitute for professional financial advice. Please contact a finance professional before using the information presented here.