If you're struggling to pay down debt, you're not alone. The total non-housing debt across America — including credit cards, student loans, and personal loans — hit $4.71 trillion in the second quarter of 2023, according to the latest Federal Reserve Household Debt and Credit Report.
Paying off debt can feel like a never-ending task, especially if you have a significant amount of it and bad credit. But the good news is that it's possible to reduce debt — quickly, in some cases — and ultimately pay it off. Plus, doing so can improve your credit, making it easier to avoid the debt trap going forward.
1. Assess your debt
To devise an effective repayment plan, it’s important to understand your entire debt situation. Review your billing statements, to start. Note the total amount owed on each account and the interest rate charged, as well as the minimum monthly payment. Having this sheet as a reference will help you when implementing one or more of the debt payoff strategies below.
Next, check your credit reports to make sure you didn’t miss any accounts with an outstanding balance. You can request free weekly credit reports from all three credit bureaus — Equifax, Experian, and TransUnion — by visiting AnnualCreditReport.com.
While reviewing credit reports, analyze factors that may be contributing to your bad score, such as late payments or accounts sent to collections. If you find inaccuracies, dispute them with the respective credit bureau — doing so could potentially boost your score and protect you from fraud.
2. Make a budget and reduce expenses
Create a budget if you don't already have one to find cash to pay down debt. List all of your expenses and income. Then, find areas you can cut back in, like eliminating or downgrading subscriptions, and eliminating food deliveries or eating out less.
Review your budget to see where you're spending the most. That can also inform your next steps. For example, if all your money is going to debt payments, prioritize debt consolidation or a debt management plan (DMP). If you have a high car payment, see if it’s possible to downgrade to a more affordable vehicle for a lower payment.
3. Consider credit counseling
If you need assistance creating a DMP, contact a nonprofit credit counseling agency. These companies often offer free credit counseling. They can also negotiate with creditors on your behalf to set up a debt management plan, in exchange for a one-time and monthly fee. With these plans, you make a monthly lump-sum payment to the agency, and it uses those funds to pay your creditors. DMPs typically last three to five years.
One downside to a DMP is that you may have to pay a monthly fee, such as $33, plus an initial setup fee, such as $75. Note that the agency may not allow you to open new credit accounts while enrolled in the plan. Plan to share your debt assessment and budget with your credit counselor to streamline the process.
4. Debt consolidation for bad credit
Even with bad credit, it can be possible to qualify for a debt consolidation loan. Debt consolidation is when you use a loan, like a personal loan, to pay off your existing debt. A debt consolidation loan replaces multiple debt payments with a single monthly payment, which can save you money on late fees and be easier to manage. Plus, it gives you an end-date for when your debt will be paid off.
Ideally, the annual percentage rate (APR) on the loan is lower than the net APR you’re currently paying on all your debt. But it doesn’t have to be. If you’re able to consolidate at a rate equal to the APR you’re currently paying, you could pay off the debt in the same amount of time, but have fewer accounts to manage. Plus, you could improve your credit score almost immediately, especially if you’re consolidating credit card debt. This is because your credit report will show multiple accounts successfully paid and your credit utilization ratio could drop dramatically if you keep the cards open.
To find the best debt consolidation loan, prequalify with multiple lenders to get an estimation of the rates you’ll qualify for. Prequalification doesn’t hurt your credit score, and is not an offer of credit. Once you apply, the lender will conduct a hard credit pull, which could temporarily lower your score — usually by no more than five points and for no longer than one year.
Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Read full reviewOverview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Read full reviewOverview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Read full reviewOverview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Read full reviewOverview
LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
Read full reviewOverview
SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number. Once you have a loan with SoFi, you may be eligible for unemployment protection and unemployment assistance.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Read full reviewOverview
Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Read full reviewOverview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
Read full reviewOverview
It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
Read full reviewOverview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Read full reviewOverview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Read full reviewOverview
BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Read full reviewFees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Read full reviewOverview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Read full review5. Negotiate with creditors
Contact your creditors to negotiate lower interest rates on your existing debt. It’s not guaranteed to work, but your creditors would prefer to be repaid some of the money you owe rather than none at all. Detail your situation and be prepared with a monthly payment amount you can afford, a payoff timeline, and the balance you’d be repaying under that scenario. Use a debt calculator to work out what makes sense for you. Just know that settling debt with creditors can damage your credit score, as debt charge-offs show up as negative items on your credit report. In addition, you may have to pay taxes on the amount of forgiven debt.
You can hire a third party, like a debt settlement company, to negotiate for you, but that can have additional drawbacks, including debt settlement fees, late payments on your credit report, and settlement offers not working.
Related: Debt Settlement Pros and Cons
6. Increase your income
Often easier said than done, but increasing your income is one of the best ways to get out of debt. One of the simplest ways to do this is to leverage assets you already have. For example, if you have spare time (say, in the evenings) and a vehicle, consider a driving gig transporting riders or delivering food or groceries.
Another way to leverage existing assets is to sell ones that you don’t need. A garage sale is one example of a tried and true way to make hundreds or thousands of dollars over the course of a weekend and clear out clutter at the same time. The key to increasing your income is to identify your resources and get creative.
Most importantly, use your newfound funds to pay off your debt. Pay down the account with the highest interest rate, or pay down the smallest amount you owe — refer to your debt assessment sheet. The first approach is similar to the debt avalanche method, the second, the debt snowball.
How to improve your credit score
You can take several steps to build good credit:
Learn what factors affect your credit score
These are the factors that influence your FICO score:
- Payment history: Repaying your debt and other bills on time accounts for 35% of your score.
- Credit utilization: How much debt you owe compared to your overall credit limit accounts for another 30%.
- Length of credit history. The average age of your credit accounts make up 15% of your score.
- New credit: How often you apply for new credit accounts represents 10%.
- Credit mix: Whether you have different types of credit accounts — a credit card and a mortgage, for example — also plays a role, making up 10% of your score.
Consider credit-building products
Some lenders offer products designed to help you build credit, such as a secured credit card or credit-builder loan.
- Secured credit card: A secured credit card requires a deposit that establishes your credit limit — which may be the amount you deposited or less. The credit card issuer generally reports your payments to the three major credit bureaus
- Credit builder loan: Credit-builder loans operate differently than traditional personal loans. Instead of receiving the loan amount upfront, a lender puts the funds in a locked savings account or certificate of deposit (CD). You then make payments over a set period — say 12 months — after which, you’ll receive the money minus interest and fees. Like a secured credit card, the lender reports your payments to the credit agencies.
Check Out: Best Credit Cards
Monitor your progress and practice good credit behavior
To track your progress, use the free credit reporting service offered by your credit card issuer or loan provider. If your lender doesn't offer one, you can use a free credit scoring website.
Although improving your score won't happen overnight, practicing good credit-building behaviors, like paying bills on time and keeping your credit utilization low, can help you build a stellar credit profile.
FAQ
Can I consolidate debt with bad credit?
Yes, debt consolidation loans for bad credit are available. Although, getting approved for a debt consolidation loan with bad credit may be challenging. Note that, if approved, a lender will likely charge a high APR, or you may need to apply for a debt consolidation loan with a cosigner. You might also consider using a home equity loan to consolidate debt, if you have home equity. Just recognize that missing payments could potentially result in foreclosure.
What are effective ways to rebuild my credit score while paying off debt?
One of the best things you can do to rebuild your credit is to make on-time payments. Doing this can help you add positive payment history to your credit reports, potentially improving your score. Another important step is to focus on lowering your credit card balances — doing this can decrease your credit utilization ratio, which accounts for 30% of your FICO score.
Are there debt relief programs specifically for people with bad credit?
Yes, credit counseling agencies work with people with various credit profiles, including bad credit. You can visit the National Foundation for Credit Counseling to find certified credit counselors in your area.
Meet the expert:
Jerry Brown
Jerry Brown is a personal finance writer, owner of the Peerless Money Mentor blog, and a contributor to Credible. He has written for major publications such as Forbes Advisor, Business Insider, and Rocket Mortgage.