Key takeaways

  • A debt consolidation loan may not be as effective when you have bad credit.
  • It may be worth waiting and taking steps to increase your approval odds before applying.
  • Strategies to improve your chances of getting a good deal include checking your credit report, raising your score, shopping around and looking into secured options.

Debt consolidation is a debt management strategy that allows you to combine multiple debts into a single account. One of the most common ways to consolidate debt is to through a debt consolidation loan — a personal loan used to pay off multiple creditors.

Debt consolidation loans can make it easier for you to get out of debt, as you’ll only have to worry about managing one account, potentially with a lower interest rate. Although it may be tough to get this type of loan with bad credit, there are several actions you can take to increase your loan approval odds.

What is a debt consolidation loan?

A debt consolidation loan is a personal loan that’s used to combine multiple debts. These loans can make your debts more manageable — and you may get a lower interest rate, saving money over time.

How to get a debt consolidation loan with bad credit

If you’re struggling to get out of debt and think a debt consolidation loan can help, but have poor credit — FICO score of 669 and under or a VantageScore below 661 — consider following these steps to find the right debt consolidation loan for your situation.

1. Check and monitor your credit score

Lenders base 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.

Many banks offer free tools that allow you to check and monitor your credit score. Once you know your credit score, it’s easier to identify lenders that may be willing to work with you. There are lenders specializing in bad credit loans, but many list credit score requirements on their websites, which can help narrow down your choices.

Bankrate tip

Check with your bank or credit card issuer to see if it offers tools that allow you to check your credit score for free.

2. Shop around

It’s rarely a good idea to accept the first loan offer you see. Instead, do your research and compare loan amounts, repayment terms and fees from multiple sources. You can find these loans at local banks, national banks, credit unions and online lenders. This process can take time, but it might save you hundreds, if not thousands, of dollars.

Bankrate tip

Compare your loan options from multiple lenders to find the best debt consolidation loan for your needs. Go to each lender’s website to learn about its products and qualification requirements.

3. Consider a secured loan

If you’re having a hard time qualifying for a regular debt consolidation loan, a secured loan might be worth considering.

Unlike unsecured loans, secured loans require some form of collateral, such as a vehicle, home or another asset. If you default, the lender will seize the collateral to recoup its funds. Because of this, getting approved for a secured loan is typically easier than an unsecured one, and you may even qualify for a better interest rate.

Bankrate tip

To increase your loan approval odds and chances of landing a lower rate, shop around for a secured personal loan.

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 hold off and take some time to work on your credit.

Make it a goal to pay your monthly debts on time for several months. It’s also a good idea to focus on paying down credit card balances and eliminating all nonessential monthly expenses..

It’s also a good idea to get a copy of your three credit reports, which you can do for free once a year or weekly through December 2023 through, and check for errors. If you find any, you can dispute them with the three credit reporting agencies, Equifax, Experian and TransUnion.

Bankrate tip

To increase your chances of receiving a lower rate, take these steps to improve your credit score: Pay your debt on time, pay off as much credit card debt as possible and review your credit reports for errors.

Where to get a debt consolidation loan for bad credit

With so many lenders out there, it can be overwhelming trying to decide where to begin. Here are some good places to start your search when choosing the right debt consolidation lender.

Credit unions and local banks

If you’re a local bank customer or a credit union member, 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 consider your entire financial history, personal circumstances and relationship you’ve had with them over the years to approve you for the loan.

Online lenders

Online lenders are good places to look for debt consolidation loans if you have bad credit. They offer bad-credit loans and generally have more flexible eligibility criteria 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 in as little as one business day.

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.

In particular, when reviewing online lenders for a potential debt consolidation loan, it’s important to know whether the company you’re considering is a direct lender. Additional costs and fees could be assessed if you’re dealing with a third-party lender.

Three best lenders for debt consolidation

Lender Best for Est. APR Loan amount Loan term Min. credit score
Avant Wide range of loan amounts 9.95% to 35.99% $2,000 to $35,000 1-5 years 550
Best Egg Direct to creditor funding option 8.99% to 35.99% $2,000 to $50,000 3-5 years 600
Upstart Consumers with little credit history 4.60% to 35.99% $1,000 to $50,000 3 or 5 years No requirement

How to qualify for a debt consolidation loan

Every lender sets its requirements for borrowers looking for debt consolidation loans. That said, these are some of the most common requirements you’ll need to meet to get approved for the loan:

  • Be a U.S. citizen or a permanent resident.
  • Be at least 18 years old.
  • Not be involved in a bankruptcy or foreclosure proceeding.
  • Have a debt-to-income (DTI) ratio below 45 percent.
  • Have a credit score in the mid-600s.

Although some lenders may still approve you for a loan even if your credit score is below that threshold and your DTI is on the higher side, you’ll probably end up paying more in interest and fees. If that happens, it may not be worth it for you to apply for a debt consolidation loan, as you won’t be able to save money.

What credit score do you need for a consolidation loan?

Each lender carries its own requirements but credit score minimums tend to fall in the mid-600s.

Alternatives to a debt consolidation loan

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 some of these alternatives instead.

Do-it-yourself approach

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)

Debt management plans or DMPs are another type of debt consolidation for bad credit. While in the program, you make one lump-sum monthly payment to a credit counseling agency that covers multiple monthly bills.

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.

Going through this process typically results in a notation on your credit report that you’re on a debt management plan. Though the notation will not impact your credit score, lenders may be hesitant to offer you new lines of credit.

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. A home equity loan isn’t technically a debt consolidation loan, but

it might help you score a low interest rate because your home secures the loan.

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 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.
  • 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.

Before taking out a home equity loan, consider the fact that your house is at risk if you default on payments.

What to do if you don’t qualify for another loan

If you’re drowning in debt and the alternatives listed above are a no-go, credit counseling, debt settlement and bankruptcy may be your only ticket to getting some relief.

Credit counseling

A credit counseling agency 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.

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

Debt settlement

Debt settlement goes one step further than debt management. Debt settlement companies 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 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 damage your credit score even further, which can take a long time to rebuild — even if you don’t have debt anymore. That is because negative marks, such as defaults, stay on your credit report for up to seven years.

Besides that, debt settlement services also come with fees of up to 25 percent of the balance settled, which is something to consider.


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 place your assets under control of a bankruptcy court and agree to give up most or all of your wealth.

Bankruptcy doesn’t discharge all types of debt. For example, you still have to pay student loans and child support. 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 a bankruptcy attorney to get advice about your best path forward.

Watch out for predatory lenders

Predatory loans are those that benefit the lender at the borrower’s expense. Predatory lenders are rather common in the bad credit space, as these companies take advantage of borrowers’ limited ability to secure a loan through the conventional route to push risky credit products on them. The warning signs include:

  • Triple-digit interest rates and equally exorbitant fees.
  • Pressure to act quickly.
  • The lender asks you to lie on your application.
  • The fees or terms suddenly change at closing.

Accepting such a loan 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 for you to get out of debt, as you’ll have a harder time keeping up with the higher payments.