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If you’re looking for a debt consolidation loan with bad credit, your options may be limited, but they do exist.

Bad credit loans for debt consolidation are available through credit unions and online lenders.

Interest rates and fees can be high, though, so it’s essential that you shop around to find a lender that offers reasonable terms, and also look into some alternatives.

Here’s what to know — and what to watch out for — when searching for a bad credit debt consolidation loan.

What are debt consolidation loans?

Consolidating debt can be a smart way to save on interest and potentially pay down your debt faster. With a debt consolidation loan, you borrow enough to pay off one or more other debts, then make just one monthly payment going forward.

For example, let’s say you have two credit cards, one with $5,000 and another with $2,500 with an average annual percentage rate (APR) of 25%. By taking out a consolidation loan of $7,500 with a 20% APR, you can pay off both credit cards, simplify your repayment plan and pay less interest.

The best debt consolidation loans are reserved for borrowers with excellent credit. But there are plenty of lenders who specialize in working with people who have bad credit, so you may still have a chance to get approved.

The best options for a debt consolidation loan for bad credit

With so many lenders out there, it can be tough to know where to start looking. Here are some good places to start.

Your local credit union

Because credit unions are not-for-profit organizations owned by their members, they typically offer loans with better terms than you can get from a traditional bank. They may also have more room to lend to members whose credit histories aren’t in great shape.

If you’re a member of a credit union, talk to a loan officer about qualifying for a personal loan. Credit unions may look beyond your credit score and take into account your entire financial history, personal circumstances and your relationship with the institution.

Online lenders

Online lenders like LendingClub, Upstart and Avant are good places to look for debt consolidation loans for bad credit.

With an online lender, you can often:

  • Compare rates without impacting your credit score
  • Apply quickly and easily, without lots of paperwork or visiting a branch in person
  • Get funds within a week, or even in as little as one business day

Online lenders may be more likely to approve you for a bad credit loan than a traditional, brick-and-mortar bank.

Check online lender rates on our Personal Loans Marketplace.

Your home equity

If you own a home and have significant equity in it, you may be able to take out a home equity loan to consolidate your debt. It’s not technically a debt consolidation loan for bad credit, but it can help you score a low interest rate because the loan is secured by your home.

The only drawback is that if you default on a home equity loan, the lender can foreclose on your home to recoup the loan amount. So it’s best to pursue this option only if you’re certain you won’t have problems with repaying the debt.

Watch out for predatory lenders

Some debt consolidation lenders are predatory in nature. They’re happy to work with people with low credit scores but charge extraordinarily high interest rates.

Online companies like LendUp and OppLoans, for instance, charge triple-digit APRs. That said, they’re nowhere near as bad as payday loans, which typically charge APRs of 400% or higher.

Avoid these types of lenders at all costs. Accepting a loan with such a steep interest rate can be extremely expensive and cause you to go deeper into debt.

5 steps to getting a debt consolidation loan for bad credit

If you’re struggling to get out of debt and think a consolidation loan can help, here are some steps to take to find the right loan and improve your chances of getting approved.

1. Check your credit score

Lenders base their loan decisions on your credit history, which is represented by your credit score. In most cases, the lower your credit score, the higher the interest rate on your loan. If your score is below the lender’s minimum requirement, the lender may decline your application outright.

Knowing your credit score will help you understand which debt consolidation loans you should apply for and what your chances are of getting approved. Applying for a loan results in a hard credit check, which can knock a few points off your credit score. So you don’t want to submit an application unless you know you have a chance.

Most lenders categorize bad credit as a score of 629 and below, fair credit as 630 to 689, and good credit as 690 to 719. However, some lenders may accept credit scores in the high 500s or lower. Avant, for instance, has a minimum credit score requirement of 580.

OneMain Financial doesn’t have a minimum credit score at all, although that doesn’t mean you’re guaranteed approval.

Once you know your credit score, you’ll have a better idea of whether you should apply for a debt consolidation loan for bad credit or a personal loan from a traditional lender.

Check your credit score for free at

2. Shop around

Several lenders offer debt consolidation loans for bad credit, so it’s rarely a good idea to go with the first offer you see. Instead, take your time and compare loan options from several lenders. This can be easy with online lenders because you can check rates with just a soft credit check.

In addition to comparing rates, also look at fees, repayment terms, and other fine-print items that could affect you. This part of the process can take time, but it can save you hundreds, if not thousands, of dollars if you do it right.

3. Consider a secured loan

Consolidation loans are typically unsecured, which means they don’t require collateral like a car loan or a mortgage. If you’re having a hard time getting approved for an unsecured consolidation loan — or you can’t find one with a decent interest rate — it may be worth considering a secured loan.

Secured loans require some form of collateral, such as a vehicle, home or another type of asset. The collateral usually has to be worth enough to cover the loan amount if you default. Because of this, it’s typically easier to get approved for a secured loan than an unsecured one, and you may even qualify for a better interest rate.

4. Ask someone to co-sign

If you have a close friend or family member with stellar credit, you could improve your chances of getting approved and at a lower rate by getting them to apply with you.

This is because co-signers effectively agree to take over payments if you stop paying, and since they have a history of using credit responsibly, the lender views the loan as less of a risk overall.

That said, defaulting on a co-signed loan could cause problems with your relationship with your co-signer. So if you’re going to go this route, make paying off the new loan a top priority.

5. Wait and improve your credit

If you’ve tried everything and can’t find a loan that can help you save money, it may be best to wait a while until you can establish a better credit score.

Specifically, make it a goal to pay your monthly debts on time every month. If you have any past-due accounts, get them current as quickly as possible. Also, work to pay down credit card balances to lower your credit utilization rate. This can help boost your credit score.

Finally, get a copy of your credit reports and check to see if there’s any erroneous or unfair information listed. If there is, you can file a dispute with the three credit reporting agencies.

Building your credit can take time, but as long as you’re actively working to pay down your debt in the meantime, it can save you money in the long run.

What to do if your situation is dire

If you’re overwhelmed with debt and aren’t sure if a debt consolidation loan for bad credit is going to do the trick, it may be worth exploring some other options. Credit counseling, debt settlement and bankruptcy aren’t ideal, but they may be your ticket to getting relief.

Credit counseling

Credit counseling agencies can help you by acting as a middleman between you and your creditors. A credit counselor can set up a debt management plan, which typically lasts three to five years.

During this time, you pay one lump sum to the agency each month, plus a small fee, and your credit counselor will divvy up the payments amongst your creditors. The best part is that credit counseling agencies typically have contracts with creditors with lower interest rates than what you may be currently paying.

So this process can help you work with your creditors and score a lower interest rate along the way. If you’re thinking about working with a credit counselor, make sure you work with a non-profit agency. You can find one in your area through the National Foundation for Credit Counseling or the Financial Counseling Association of America.

That said, going through this process typically results in a notation on your credit report that you’re on a debt management plan. When you apply for credit again in the future, a lender may see that and decide not to lend you money because of it.

Debt settlement

Debt settlement companies like National Debt Relief and Freedom Debt Relief can work with you to settle your debt for less than what you owe.

The caveat is that you typically need to pay enough into an account with the debt settlement company before they start negotiations with your creditors — often at the expense of making your regular monthly payments, forcing you to default. If this happens, it could severely damage your credit score, after which can take a long time to rebuild.

Also, debt settlement companies typically charge fees, and they can’t guarantee that they can settle for you.


If you’re experiencing financial hardship and even debt settlement doesn’t sound possible, bankruptcy may be your only option. Depending on the type of bankruptcy you file, you may need to liquidate some of your assets to pay off some or all of your debts or get on a payment plan.

Either way, bankruptcy can have a significant negative impact on your credit score, and it can be difficult to get approved for credit for a while afterward. But it can also provide you a way out of your current situation, which may be more important at the moment.

If you’re considering bankruptcy, consult with a bankruptcy attorney to get advice about your best path forward.

Make paying off your debt a priority

Regardless of how you get rid of your debt, it’s important to have a plan for accomplishing your goal. It can be discouraging if you can’t find a good consolidation loan or you’re faced with the prospect of debt settlement or bankruptcy. But don’t let that discouragement paralyze you.

Take the time to decide which path is best for you, then don’t waste any time taking it. It may be a painful process, but it’ll be worth it in the end.

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