Debt Consolidation Loans for Bad Credit

Debt consolidation can help you lower your interest rate and monthly debt costs, and reduce the number of monthly payments you make. Unfortunately, it can be more challenging to get a debt consolidation loan if you have bad credit. You may be subject to higher interest rates or may not qualify for a loan at all.

The good news is that even if you have bad credit, there are steps you can take to increase your chances of qualifying for a debt consolidation loan and improve your finances.

Best debt consolidation loans for bad credit

What is a debt consolidation loan for bad credit?

A debt consolidation loan is any loan you use to pay off multiple debts — you effectively trade your current debts for one new loan with one monthly payment. The goal is to achieve a lower interest rate or a lower monthly payment. For example, if you’re carrying a balance on several credit cards with high APRs and high monthly payments, you might apply for a debt consolidation loan and use the funds to pay off your credit card debt. That would leave you with just one outstanding balance and a potentially lower monthly payment. 

Personal loans have lower average APRs than credit cards, according to Federal Reserve data, and are more likely to be available to borrowers with bad credit than other types of debt consolidation loans.

Read More: What is Debt Consolidation?

Debt consolidation loan rates for bad credit

Borrowers approved for a debt consolidation loan or credit card refinancing with bad credit received the following rates, on average, according to 12 months of Credible marketplace data. (Loans for credit card refinancing indicate that only credit cards were consolidated, while debt consolidation can include other types of debt.)

Pros and cons of debt consolidation loans for bad credit

Taking out a loan to consolidate debt might not be the ideal solution for every person or every situation. Make sure to consider the pros and cons of debt consolidation before deciding.

Pros

• Reduce the cost of debt repayment: If you can qualify for a loan with a lower APR than you’re currently paying on your outstanding debts, you may be able to get out of debt at a lower cost. But keep in mind that if you extend the repayment period, you might end up paying more over time, even if debt consolidation lowers your interest rate. 
• Lower monthly payments: Even if you’ll pay more in the long run to consolidate debt, it could be worth it to get a lower monthly payment now. 
• Manageable monthly payments: If you can’t manage the minimum payments on your debts and are at risk of incurring late fees or entering default, a debt consolidation loan may help you get a lower payment and avoid the negative credit impact of paying late. 
• Could improve your credit score: Using a personal loan to pay off credit card debt reduces your credit utilization ratio, which may improve your credit score within a month. On-time payments can have an even larger impact over time — which is why it can make sense to get a more affordable monthly payment even if you pay more over the loan’s term. 
• Quick and easy application: Unlike other debt relief options like debt settlement, personal loans don’t require extensive time or paperwork. You can typically apply online in minutes and get a decision either instantly or within a few days.
• Quick funding: In most cases, you can receive your debt consolidation loan funds within a few business days. For example, Reprise typically disburses loan funds electronically within 24 to 48 business hours. Note that it often takes longer for your creditors to receive the funds if you choose direct payment. 

Cons

• Potential for further credit damage: Applying for any loan typically requires a hard credit inquiry, which has a slight negative impact on your credit score. While repaying your loan responsibly can improve your credit score, late or missed payments could further harm your credit. 
• May require an upfront fee: Most lenders that offer personal loans for bad credit charge an origination fee, an upfront fee that can reduce the amount you receive. Along with the interest rate, origination fees and other upfront lender fees are factored into the annual percentage rate (APR), which represents the total annual borrowing cost. 
• Not ideal for extensive debt: If you’re overwhelmed with debt, lowering the APR may not make enough of a dent to help your situation. “When a person’s debt is more than their annual income or a person’s wages are being garnished, a debt consolidation loan generally is not the best option,” says Jillian Hishaw, owner and attorney at Hishaw Law LLC, a bankruptcy firm.
• May not address underlying issues: A debt consolidation loan won’t help you earn more income or spend less. If you’re struggling to manage your finances on a regular basis, you may want to get help from a credit counselor or check whether you qualify for government benefits. 

How to compare debt consolidation loans for bad credit

The first step to getting any loan, especially if you have bad credit, is to prequalify. This is a way to quickly screen potential lenders to find those most likely to approve your application. 

1. Review your credit score and income: Find lenders with minimum credit score and income requirements lower than yours. 
2. Compare loan amounts: Personal loans for bad credit typically range from $1,000 to $35,000, depending on the lender. Make sure the lender offers the amount you need to consolidate your debt.
3. Consider fees: In addition to interest, some personal loan lenders charge an origination fee, which may be deducted from the loan amount and affects how much cash you receive. If you’ve been able to prequalify with multiple lenders, compare each loan’s APR to get an idea of the total borrowing cost.  
4. Review repayment terms: Some lenders offer longer repayment terms than others. If you’re on a tight budget, you can typically achieve a lower monthly payment by choosing a longer repayment term, but you may pay more in interest over time.
5. Look for creditor-direct pay: Some debt consolidation lenders offer direct payment to your creditors, which eliminates the temptation to spend the loan funds on something else. For example, Achieve offers to pay your creditors directly, and you could qualify for a rate discount with the autopay option. 
6. Find lenders that allow a cosigner or co-borrower: Some lenders allow you to apply with a cosigner, which is someone who guarantees repayment of the loan, or a co-borrower, which is someone who is also responsible for the loan and has access to the funds. Applying with a cosigner or co-borrower who has good credit can help you qualify for a debt consolidation loan or get a lower APR. 
7. Check lender reputation: Evaluate customer reviews on third-party websites like Trustpilot to determine the lender’s reputation for customer service.

How to get a debt consolidation loan with bad credit

1. Add up all the debt you want to consolidate and note the interest rate you’re paying on each debt.
2. Prequalify using a loan marketplace like Credible to get APR estimates.
3. Compare loan options based on features like APR and repayment terms.
4. Choose the lowest-cost option with an affordable monthly payment.
5. Consider asking a friend or family member with good credit to cosign or apply jointly with you.
6. Proceed with the formal application and authorize a hard credit check (in most cases).
7. Upload any required documents, like proof of income.
8. Review the terms and conditions if you’re offered a loan.
9. E-sign your loan documents to get your cash or have the money sent to your creditors. 

Tips on improving your chances of approval

Getting a debt consolidation loan with bad credit can be a challenge. If you’re struggling to get approved or to achieve a low enough APR to make debt consolidation worthwhile, consider the following tactics:

• Consider bad credit lenders: A few online lenders specialize in serving borrowers with bad credit and may evaluate factors beyond your credit score. For example, Upstart considers educational background when making lending decisions and accepts applicants with limited credit history. 
• Look to credit unions: Credit union personal loans may be easier to qualify for than bank loans if you have bad credit. Credit unions are member-owned, not-for-profit institutions that offer lower rates and often consider other criteria when evaluating borrowers.
• Offer collateral: Some bad credit lenders offer secured personal loans for debt consolidation, which require you to offer a valuable asset as collateral. Securing the loan with an asset, like your vehicle title or a CD, can make it easier to qualify or get a lower APR. Just be aware that the lender can seize your collateral if you fail to repay. 
• Apply with a cosigner or co-applicant: Asking a friend or family member with good credit to guarantee the loan gives the lender reassurance and improves your odds of approval. While few lenders allow cosigners, many allow co-borrowers. Co-borrowers have equal access to the loan funds in addition to guaranteeing repayment. 
• Improve your credit score: It may be worthwhile to improve your credit score before applying for a debt consolidation loan. Use a tool like Experian Boost or Self to build credit via your on-time rent and utility payments. You can also improve your score by paying down debt, making on-time payments, and becoming an authorized user on the card of someone with good credit. 

How to improve your credit score

Here are a few steps you can take:

1. Dispute credit report errors: If you find errors on your credit report, dispute them directly with the credit bureaus. Assuming the reports are incorrect and you've supplied enough supporting information to the credit bureau, they may be removed from your credit report, along with any negative impact they had on your credit score.
2. Address past-due debts: If you have any, pay them as soon as possible. Yes, your missed payments will still appear on your credit report. But getting out of delinquency will help improve your credit.
3. Get a credit-builder loan: Credit-builder loans come with shorter repayment terms — from six months to two years — and your funds are deposited into a locked savings account until you've paid off the loan. With this type of loan, you'll make regular principal and interest payments that are reported to each of the three major credit bureaus, and you'll get your funds at the end of the loan term.
4. Improve your payment history: Payment history is the most important factor in determining your credit score. Set up autopay and calendar alerts for due dates to avoid missing payments.
5. Reduce your credit utilization: You can improve your credit score by using less of your available credit on your cards or other revolving credit accounts. If you currently have credit card debt, consider paying some of it off before applying for a debt consolidation loan.
6. Become an authorized user: This is one of the fastest and most effective ways to improve your credit score. Ask a loved one or friend with good credit to add you as an authorized user on their credit card. You'll get credit for the positive payment history on your credit report and can benefit from their available credit, which can quickly boost your credit score.

Learn More: Where to Get a Personal Loan

Alternatives to consolidating debt with bad credit

Debt management plan

A nonprofit credit counseling agency can provide budgeting advice and also enroll you in a debt management plan, which is a type of debt consolidation. Under the plan, you’ll make one monthly payment to the credit counseling agency, which will negotiate lower rates and fees with your creditors on your behalf. 

Balance transfer credit card

Credit card issuers sometimes run promotions that allow existing cardholders to avoid interest on balance transfers from other credit cards — but only if your account is in good standing. Your credit card company may not notify you of this, so check your account for offers. Promotions can run for six months or longer, which could help you save money on debt repayment. However, many cards charge a balance transfer fee, typically 3% to 5%, that can offset your savings.

Debt settlement

When you go through a debt settlement program, a company works to settle your debt on your behalf. For instance, the company may negotiate with lenders to accept a reduced amount. But debt settlement programs often require you to stop making payments as a negotiating tactic, which can harm your credit and possibly lead to legal action from your creditors. Plus, they can take years and results are not guaranteed. This is not a course we generally recommend.

Bankruptcy

Bankruptcy is a legal process that helps people get rid of debt. Depending on the type of bankruptcy, the court either oversees the liquidation of your non-exempt assets or the completion of a repayment plan. Most remaining debts are typically discharged. 

Bankruptcy stays on your credit report for up to 10 years. If you have good credit, bankruptcy can cause a significant drop in your credit score. But if you already have poor credit, you might see an increase in your credit score once the debt is discharged. More importantly, you’ll have the opportunity to create good credit habits and improve your score once you’re debt-free. 

Methodology

Credible evaluated 32 lenders across 1,216 data points to find the best debt consolidation loans for bad credit. We considered lenders with minimum FICO credit score requirements of 580 or less, and gave preference to lenders that allow cosigners, joint applicants, and/or offer secured loans. 

Lender star ratings were established based on the following weighted categories:

• Rates and fees: 18.75%
• Eligibility and options for bad and no credit: 17.5%
• Availability: 12.5%
• Loan amounts and terms: 10%
• Customer satisfaction: 10%
• Customer service: 10%
• Efficiency and fund delivery: 10%
• Discounts: 7.5%
• Credible proprietary data: 3.75%

Credible’s team of experts gathered information from each lender’s website and from our partners directly. We also considered each of our partner lenders’ statistics over a 12-month period — including average funding times, average credit scores for approved applicants, and average rates. Each data point is verified by a senior editor to make sure it’s accurate at the time of publication. 

Learn more about how Credible rates lenders by exploring our personal loans lender rating methodology.

Disclosure: Some lending partners that participate in Credible’s comparison marketplace offer loans to borrowers with scores as low as 550. Borrowers with low scores will have fewer lending options than borrowers with higher credit scores.