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Got a lousy credit score and a lot of debt and want to fix it with a debt consolidation loan?

Options for these bad credit loans, which merge multiple debts into one monthly payment, are limited, but they do exist.

Debt consolidation loans for people with poor credit are available through credit unions and online banks. 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 with a single loan can be a smart way to save on interest and potentially pay down what you owe faster. With a debt consolidation loan, you borrow money to pay off your existing debts, then make just one monthly payment going forward. Ideally, the money you borrow comes with more favorable terms than your existing debt, such as a lower interest rate.

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

Debt consolidation loans with the best terms, however, are reserved for borrowers with excellent credit. But there are lenders who specialize in working with people who have bad credit, so you may still have a chance to get approved.

Get pre-qualified

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.

Credit score requirements for debt consolidation loans

There are a variety of loan options out there for borrowers with a wide range of credit scores. In order to qualify for debt consolidation loans with the lowest interest rates, though, you’ll need a good credit score.

These loans may require a credit score of 700 or above, with interest rates ranging from 5.99  percent to 35.99 percent. Only the most creditworthy borrowers will qualify for rates on the lower end of this range. Many of the same lenders will approve borrowers with fair credit in the 640 to 699 range but will likely charge an interest rate that’s on the higher end.

Most lenders require a minimum credit score of 630 or 640 to qualify for a debt consolidation loan. If your credit score drops below this mark and you still qualify for a loan, expect to pay sky-high interest rates and hefty origination fees. That being said, you may still have a few options if you’re looking to ease the burden of your current debt load.

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 leeway to lend to members whose credit histories aren’t in great shape, particularly if you’ve already built a positive relationship with them.

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 low 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 if you have 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 Loan Rates page.

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.

But there’s one drawback: 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, and this is especially true of lenders that work with people who have low credit scores. They’ll often charge exorbitantly high interest rates.

Online companies like LendUp and OppLoans, for instance, charge triple-digit APRs. That said, they’re nowhere near as pricey as payday loans, which typically charge APRs of 400 percent 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. Plus, it defeats the purpose of a debt consolidation loan, which is meant to make it easier for you to pay down your 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 and monitor 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 to be approved.

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 here.

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, which doesn’t hurt your credit score.

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

Debt 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 low enough interest rate — it may be worth considering a secured loan.

Secured loans require some form of collateral, such as a vehicle, home or other type of asset. The collateral usually has to be worth enough to cover the loan amount in the event 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 risky.

That said, defaulting on a co-signed loan could hurt 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 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, it can save you money in the long run.

Benefits of a debt consolidation loan

While debt consolidation loans should be taken on cautiously, choosing the right one will come with a range of benefits. As long as you pay off your new loan in a timely manner, you could end up reducing your stress, saving money and improving your credit.

One monthly payment

The most obvious benefit of debt consolidation loans is that they simplify your monthly payments by consolidating all of your accounts under one balance. When you only have one monthly payment to remember, you’re less likely to miss a due date. This is a valuable benefit, because even one late payment can rack up fees and hinder your ability to pay down your debt.

Lower your interest rate

The other main objective in consolidating your debt is to secure a lower interest rate. Decreasing your interest rate, even by a couple percentage points, is one of the best ways to save money and pay off debt more quickly. Keep in mind that debt consolidation loans for bad credit won’t always come with a lower interest rate than your existing debt.

Increase your credit score

Debt consolidation loans also have the potential to improve your credit score. While the inquiry on your credit report associated with the loan application might cause a small, temporary decrease in your score, paying off high credit card balances with your new loan will decrease your credit utilization, which can impact up to 30 percent of your credit score. (Credit utilization is the ratio of your outstanding credit card balances to your total credit limit.) You’ll need to leave your credit cards open after paying them off but avoid using them in order to see a bump in your score.

Stop collections calls

If your debt is in collections, you’re probably tired of receiving constant calls from debt collectors. Once you pay off your debt with a debt consolidation loan, those calls will stop.

Alternatives to a debt consolidation loan

Debt consolidation isn’t the best option for everyone. In fact, taking out a debt consolidation loan with bad credit can leave you with a loan that’s more expensive and takes longer to pay off. If you can’t qualify for a debt consolidation loan with an interest rate that’s lower than what you’re currently paying, you might want to consider these alternatives instead.

Do-it-yourself fixes

Start by creating a budget that includes all your debts, the minimum monthly payments, all of your other necessary expenses and your income. Figure out where you can cut costs, and from there, you’ll be able to see how much money you have leftover to put toward your debt.

Call your lenders to renegotiate the terms of your debt. They might be willing to lower your interest rate if you’ve always paid on-time. If you’re struggling to meet your minimum payments, they might be willing to work with you.

Finally, ask to have your payment due date adjusted so that all of your payments are paid on the same day. While this isn’t the same as consolidating your debt, it will help you keep track of your obligations more easily.

Debt management plan (DMP)

The National Foundation for Credit Counseling (NFCC) is a nonprofit financial counseling organization with member agencies around that country that offer debt management plans. These plans, which are often free or minimal in cost, connect you with a financial counselor who helps you develop a budget and repayment plan, and also negotiates with lenders on your behalf to lower your interest rate, monthly payments and other fees.

In a way, debt management plans also help you to “consolidate” your debt. While in the program, you make one monthly payment to your credit counseling agency that covers all of your bills for the month, and then the agency pays each of your creditors on your behalf. Most debt management plans take 36 to 60 months to complete, and participating in one will not damage your credit.

Home equity loan

A home equity loan, sometimes referred to as a second mortgage, is a lump-sum, fixed-rate loan that homeowners can take out against the equity in their homes. (Home equity is the difference between your home’s value and any outstanding mortgages.)

These loans can then be used to pay off other debt. The advantage is since the loan is secured by your house, you can get a home equity loan with bad credit and you may even be offered a lower interest rate. The danger of home equity loans is that if you find yourself unable to pay off the loan, you could risk losing your house.

Home equity line of credit (HELOC)

A home equity line of credit, or HELOC, is another type of second mortgage, and like a home equity loan, you’ll be borrowing money against the value of your home. However, rather than borrowing a lump sum at a fixed interest rate, you’ll be taking out a line of credit — similar to opening a credit card. In other words, you’ll have access to funds whenever you need them up to a maximum borrowing limit.

The benefits and drawbacks of a HELOC are similar to those of a home equity loan. While you might have an easier time qualifying and securing a lower interest rate, you could lose your home if you aren’t careful.

Cash-out refinancing

If you’re a homeowner with sufficient equity in your home (usually at least 20 percent), cash-out refinancing is another way to consolidate debt with bad credit. Refinancing your mortgage is the process of taking out a new loan with more favorable terms to pay off your existing loan. When you do cash-out refinancing, you borrow more than you currently owe on your home so that you can use the leftover funds to pay off your debt.

This is another method that gives people with bad credit access to loans with lower interest rates.  But the downsize is using your house as collateral puts you at risk for foreclosure.

What to do if your situation is dire

Debt consolidation loans and alternatives noted above are best for people who can qualify for a lower interest rate. If you’re drowning in debt and can’t afford your monthly payments, it might be wise to consider the following options: credit counseling, debt settlement or bankruptcy. While these options aren’t ideal, they may be your ticket to getting relief.

Credit counseling

Credit counseling agencies can help by acting as a middleman between you and your creditors. A credit counselor can help you understand your credit report and suggest steps for improving your credit score and achieving financial stability. Often, these services are free.

If you’re struggling to manage your debt, credit counselors can also set you up with a debt management plan, which typically lasts three to five years. They may charge a small monthly fee for this service.

During this time, you pay one lump sum to the agency each month, plus a small fee. Your credit counselor will then 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.

If you’re thinking about working with a credit counselor, make sure you work with a nonprofit 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 in the future, a lender may see that and decide not to lend you money because of it.

Debt settlement

Debt settlement goes one step further than debt management. Debt settlement companies like National Debt Relief and Freedom Debt Relief work with you in order 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 it can take a long time to rebuild. This service also costs money whether or not they’re able to negotiate down your debt.

Finally, while reducing your overall debt sounds tempting, settling accounts to be paid off for less than what you originally owed will leave a negative mark on your credit report for seven years.

If the only other option you have is bankruptcy, it might be worth considering debt settlement. Otherwise, it’s best to pay off the balances you owe in full.


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.

It’s important to note that declaring bankruptcy doesn’t discharge all types of debt, (for example, you still have to pay student loans and child support debt), and it will remain on your credit report for seven to 10 years. It will be years before you’ll qualify for credit again.

That being said, filing for bankruptcy gives you a second chance to rebuild your finances. With diligence, your credit will eventually recover.

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 debt consolidation loan or you’re faced with the prospect of debt settlement or bankruptcy. But don’t let that discouragement paralyze you. If you can avoid letting an account go to collections while you decide, do so.

Keep in mind that debt consolidation loans are a temporary fix that don’t address the core problem of how you got into debt in the first place. If you opt for a debt consolidation loan, be sure to take additional steps toward financial stability like creating a budget, curbing your habit to overspend and looking for additional income opportunities. You should also avoid racking up new balances on accounts you just paid off at all costs.

Finally, be cautious about jumping on any loan you can qualify for just to pay off your debt quickly. Taking out a predatory loan to pay off your current debt is exchanging one problem for another.

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