How to get a debt consolidation loan with bad credit

10 min read

If you have a lot of debt and a FICO credit score that’s 669 or lower (in the range of fair to poor), getting a debt consolidation loan can be a sound move. Some lenders specialize in debt consolidation loans for bad credit and weigh factors besides your credit score — such as your income, work history and education — to qualify you for the loan.

A good debt consolidation loan should have a lower interest rate than the rate on your current debts and allow you to retire those debts more quickly and at a lower cost. Use Bankrate’s debt consolidation calculator to decide whether a consolidation loan is a good strategy for you. Then shop around for the best rates and terms. You can find debt consolidation loans at online lenders and credit unions.

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.

4 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 tips to help you find the right loan and improve your chances of approval.

1. Check and monitor your credit score

Lenders base their loan decisions largely upon the condition of your credit. Generally, the lower your credit score, the higher the interest rates lenders will offer you on financing. If your score is below the lender’s minimum requirement, the lender may decline your application outright.

Many lenders categorize bad credit as a score of 639 and below, fair credit as 640 to 699 and good credit as 700 to 749. However, some lenders may accept credit scores in the high 500s or lower.

Once you know your credit score, you’ll have a better idea of which lenders may be willing to lend to you. Some specialize in loans for people with bad credit, and others list their credit score requirements on their websites.

2. Shop around

It’s rarely a good idea to accept the first loan offer you see. Instead, take your time and compare loan options from several lenders. This can be easy with online lenders because you can often 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 the cost of your loan. This part of the process can take time, but it might save you hundreds, if not thousands, of dollars if you do it right.

3. Consider a secured loan

Debt consolidation loans are typically unsecured, meaning they don’t require collateral. But if you’re having a hard time getting approved for an affordable unsecured consolidation loan, a secured loan might be worth considering.

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 that 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. Wait and improve your credit

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

Make it a goal to pay your monthly debts on time every month. Also work to pay down credit card balances to lower your credit utilization rate. This may help boost your credit score.

Finally, get a copy of your three credit reports, which you can do for free once a year, and check for errors. If you find any, you can dispute them with the three credit reporting agencies.

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

Where to get a debt consolidation loan with bad credit

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

Credit unions and local banks

Local banks and credit unions will typically check your credit when you apply for a personal loan, just like any other lender. Yet these local financial institutions may be willing to offer you more leeway if your credit isn’t in great shape, particularly if you’ve already built a positive relationship with them.

If you’re a customer of a local bank or a member of a credit union, you can talk to a loan officer about whether you qualify for a personal loan (and what the rate and terms are, if you do). The institution may look beyond your low credit score and take into account your entire financial history, personal circumstances and relationship with the bank or credit union.

Online lenders

Online lenders are good places to look for debt consolidation loans if you have bad credit, as they may be more likely to approve you for a bad-credit loan than a traditional brick-and-mortar bank.

With an online lender, you can often:

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

With that said, online lenders frequently charge high APRs for bad-credit debt consolidation loans. You also have to watch out for origination fees that could add to your overall cost of financing and cut into your loan proceeds.

If you’re considering debt consolidation loans for bad credit, here are some online lenders you may want to check out:

  • LendingClub is reported to have a minimum credit score requirement of 600. APRs range from 10.68 percent to 35.89 percent on debt consolidation loans of up to $40,000.
  • Upstart requires applicants to have a minimum credit score of 620 or higher to qualify for a debt consolidation loan. Qualified borrowers may be able to take out loans from $5,000 to $30,000 with an APR range of 6.18 percent to 35.99 percent.
  • Avant says that most of its borrowers have a credit score between 600 and 700. If you qualify for financing, you may be able to borrow as much as $35,000 at an APR between 9.95 percent and 35.99 percent.
  • OneMain Financial doesn’t specify a minimum credit score on its website, but it has a track record of working with borrowers who have fair and poor credit. The APR range on consolidation loans with OneMain Financial is 18.00 percent to 35.99 percent, and borrowers may qualify for loans of up to $20,000.

Summary of the best bad-credit debt consolidation loan options

Lender Minimum Credit Score APR Range
LendingClub 600 10.68%–35.89%
Upstart 620 6.18%–35.99%
Avant 600 9.95%–35.99%
OneMain Financial Not specified 18.00%–35.99%

Alternatives to a debt consolidation loan

Debt consolidation isn’t the best option for everyone. If you can’t qualify for a debt consolidation loan with a lower interest rate than you’re currently paying, you might want to consider these alternatives instead.

Do-it-yourself fixes

There are a few ways to alter your financial plan without involving third parties. To start tackling your debt, you can:

  • Overhaul your budget. Compare how much you’re spending with how much you earn and see where you can cut costs to free up more money for debt elimination.
  • Renegotiate the terms of your debt. If you’re struggling to meet your minimum payments, your lenders might be willing to lower your interest rate or work with you in other ways.
  • Ask for a due date adjustment. You might be able to schedule all of your payment due dates near the same day. While this isn’t the same as consolidating your debt, it may 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 the country that offer debt management plans (DMPs).

In a way, DMPs are another type of debt consolidation for bad credit. While in the program, you make one monthly payment to your credit counseling agency that covers multiple bills for the month. The agency, in turn, pays each of your creditors on your behalf (generally at a lower negotiated interest rate). Most debt management plans take three to five years to complete and typically charge monthly program management fees (often $20 to $50) for the service.

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.

Use the equity in your home

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. A home equity loan isn’t technically a debt consolidation loan for bad credit, but it might help you score a low interest rate because the loan is secured by your home.

Just keep in mind that while using your home’s equity may help you qualify for financing and possibly secure a lower interest rate, there’s significant risk involved as well. If you can’t keep up with the payments, you could risk losing your home to foreclosure. It’s best to pursue this option only if you’re certain that you won’t have problems repaying the debt.

Ways to leverage your home equity for financing include:

  • Home equity loan. Sometimes called a second mortgage, a home equity loan is a lump-sum, fixed-rate loan that homeowners can take out using the equity in their homes as collateral.
  • Home equity line of credit (HELOC). A HELOC is another type of financing that is secured by the value of your home. Rather than borrowing a lump sum at a fixed interest rate, you take out a line of credit — similar to a credit card. This gives you access to funds whenever you need them, up to a maximum borrowing limit. As you pay down your balance, you can borrow up to that limit again.
  • Cash-out refinance. With a cash-out refinance, you take out a new mortgage for more than you currently owe on your home. From there, you can use the leftover funds to pay off your debt.

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 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. Some credit counseling agencies even offer limited services for free.

If you’re struggling to manage your debt, credit counselors can also set you up with a debt management plan. Credit counseling agencies typically have contracts with creditors with lower interest rates than what you may be currently paying.

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 it will begin negotiations with your creditors — often at the expense of making your regular monthly payments, forcing you to default. If you default on your debts, it could severely damage your credit score, which can take a long time to rebuild. Debt settlement services also come with fees, sometimes regardless of whether the company is successful at negotiating down your debt.

Finally, settling debt may not help your credit score if the account was delinquent before you settled it. A zero balance won’t make late payments or other derogatory notations disappear from your credit report. You’ll still be stuck with the negative account on your credit report for up to seven years from when it went into default (though it should impact your score less and less over time).

If the only other option you have is bankruptcy, it might be worth considering debt settlement. Otherwise, an alternative option is likely best.


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. Bankruptcy will also remain on your credit report for up to seven to 10 years. Because of this, it could be years before you’ll qualify for certain types of credit again.

That being said, filing for bankruptcy can give you a second chance to rebuild your finances. With diligence, your credit can eventually recover as well.

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

Watch out for predatory lenders

If you’re considering a debt consolidation loan, keep in mind that some lenders are predatory in nature. This is especially true of lenders that work with people with 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 can charge APRs of 400 percent or higher.

Accepting a loan with such a steep interest rate can be extremely expensive and may cause you to go deeper into debt. Plus, using a predatory lender defeats the purpose of a debt consolidation loan, which is to make it easier to pay down your debt.

The bottom line

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 if 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. They 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 overspending and looking for additional income opportunities. You should also avoid racking up new balances on accounts you just paid off.

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.

Learn more:

Changing Rates Icon showing rates changing over time.

Find a personal loan that's right for you.