Debt Consolidation Loans with Bad Credit October 2024: Rates, Reviews & Options
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Even if you have bad credit, a debt consolidation loan can help you pay off your credit card debt. Since debt consolidation loans with bad credit can be expensive, check multiple loan offers and other debt consolidation solutions.
At Bills.com, we strive to help you make financial decisions with confidence. While many of the products reviewed are from our Service Providers, including those with which we are affiliated and those that compensate us, our evaluations are never influenced by them.
Best Bad Credit Debt Consolidation Loans
18% - 35.99%
$1.5K - $20K
None
7.99% - 35.99%
$2K - $37K
580
34% - 155%
$1K - $10K
None
9.95% - 35.99%
$2K - $35K
600
What's inside this article
- What is a Debt Consolidation Loan for Bad Credit?
- What credit scores do I need to get a bad credit debt consolidation loan?
- Should You Take a Bad Credit Debt Consolidation Loan?
- How to get a debt consolidation loan with a low credit score
- Where to get a debt consolidation loan for bad credit
- Bad credit debt consolidation loan alternatives
At Bills.com, we strive to help you make financial decisions with confidence. While many of the products reviewed are from our Service Providers, including those with which we are affiliated and those that compensate us, our evaluations are never influenced by them.
What is a Debt Consolidation Loan for Bad Credit?
A debt consolidation loan with bad credit lets you take one loan and pay off multiple debts.
You borrow money from one lender and pay off several credit cards, bills, or unsecured loans. Bad credit costs you. You will pay a higher interest rate for a bad credit debt consolidation loan than you would with stronger credit. Expect higher fees, too. Repayment terms are usually between 24-60. Your new loan will have a higher monthly payment than minimum monthly credit card payments.
While debt consolidation loans can simplify your finances with one monthly payment, they are not always the best solution.
What credit scores do I need to get a bad credit debt consolidation loan?
Each lender has its qualifying guidelines to qualify for a debt consolidation loan with bad credit, including credit scores and income requirements.
There is no minimum credit score for a debt consolidation loan with bad credit.
It is easy to qualify for a personal loan with a credit score over 680. It is challenging to be eligible for a credit score under 600. Some lenders do not offer debt consolidation loans to borrowers who do not have a very good to excellent credit score. However, there are lenders like Avant or OneMain Financial that specialize in bad credit scores.
Avant reports that most of their borrowers who qualify for a debt consolidation loan have scores between 600-700. However, in some cases, they will go as low as a 580 FICO credit score.
While credit scores are essential, lenders also look at your income, debt to income ratio, and other factors that help determine if you can afford the monthly payment.
Should You Take a Bad Credit Debt Consolidation Loan?
It is common for people overwhelmed with debt to think that if they could borrow enough to pay everything off, they would have a fresh start, have one payment they are confident they can make, and now be able to take control of their finances.
The catch is that many people struggling with debt have bad credit, which makes it hard to qualify for a debt consolidation loan.
Pros:
- Replace multiple bills with one.
- Save money if you reduce your interest rate.
- Improve your credit.
Cons:
- It doesn't address what got you into debt.
- High rates and upfront fees
- Possible scams and debt traps
- Increase in required monthly payment
How to get a debt consolidation loan with a low credit score
1 - Check your credit
Online lenders ask you for a self-estimated score. An accurate estimation will help you get a realistic quote. Also, check your credit report for mistakes such as wrong accounts or incorrectly reported missed payments. Disputing errors can improve your credit score and improve your chances to qualify for better rates.
2 - Lower your DTI
Lenders qualify you based on your debt to income ratio, which is the amount of your income you use to pay off your housing (or rent), credit card debts, and other loans. You can lower your debt to income ratio by increasing your income or paying off debts, or reducing the debt amount. If you have trouble qualifying for a loan, then look for ways to save and pay off small debts.
3 - Shop for the best terms
Debt consolidation loans with bad credit generally have high fees and interest rates. However, there are bad credit debt consolidation loans, especially for people whose credit score is on the rebound. Avoid scams, shop around for the best terms, and compare interest rates, origination fees, monthly payments, and prepayment penalties.
4 - Be flexible: Secured loans and co-signers
If you have trouble qualifying for a personal loan or the rates are too high, consider adding security to the loan. OneMain Financial, for example, offers better terms on their debt consolidation loans for bad credit if you provide an auto as collateral or a co-signer. A co-signer needs to meet the minimum qualifying requirements and is fully responsible for the loan. Using your car or other assets puts them at risk if you default.
5 - Consider other debt consolidation solutions
Maybe you don't qualify for a debt consolidation loan due to bad credit, or the monthly payments are not affordable. Look for non-credit score based debt relief solutions. Fortunately, there are debt consolidation alternatives for people with bad credit, including credit counseling and a debt management plan, debt settlement, and bankruptcy.
Where to get a debt consolidation loan for bad credit
Shopping for a debt consolidation loan with bad credit can be frustrating. It can even be dangerous. Search for a lender that offers more flexible terms and a qualifying process that looks beyond your credit score. The most common places to look are credit unions, local banks, and online lenders.
Here are some tips to avoid common traps and find the right loan.
- Avoid applying with lenders who only work with borrowers with strong credit. It's frustrating to get turned down by lenders and a waste of your time to apply where you have no chance of getting approved.
- Traditional banks don’t focus on loans to bad credit borrowers. Neither do peer-to-peer lenders. If you know your credit score is below 620, then bypass these lenders. Applying with them will lower your credit score when they pull your credit.
- Apply from online lenders who do a soft pull on your credit.
Credit unions and local banks
Your local bank is another place to look for a bad credit debt consolidation loan, especially if you have a personal and long-standing relationship with the bank. The loan officer may be able to look beyond your credit score and consider other financial factors.
Credit unions and local banks offer more personalized service and are better equipped to understand your unique situation.
While credit unions also have minimum credit scores, they often consider compensating factors that may allow you to qualify. For example, one leading credit union, First Tech Federal Credit Union, explains that "securing a personal loan with bad credit is not impossible. We have a full range of products to offer to all credit types. We will work with you to understand your unique situation." Federal Credit Unions have a maximum personal loan interest rate of 18% APR, which is a good rate for a bad credit loan. Credit unions have varying membership requirements; some anyone can meet and others restricted.
Your local bank is another place to look for a bad credit debt consolidation loan, especially if you have a personal and long-standing relationship with the bank. The loan officer may be able to look beyond your credit score and consider other financial factors.
Online Lenders
It is easy to shop for a bad credit debt consolidation loan online. Online lenders are abundant. Getting getting a quote takes only takes a few minutes. The most significant advantages of shopping online are the convenience of shopping anywhere, anytime; the ease of comparing rates and terms; the simple application; receiving a quick reply; and fast funding. The large number of online lenders that prequalify you without any hit to your credit score is a significant benefit if you have bad credit.
It is a good idea to check a rate table to see different offers. Most bad credit lenders require a minimum score of around 585. OneMain doesn't have a minimum score requirement but is best for small and secured loans. Some lenders, like Avant, offer very fast lending. OneMain is best for small, secured loans. NetCredit also doesn't have a minimum credit score requirement but has very rates and fees. NetCredit is best only as a last resort loan.
The significant drawbacks to online debt consolidation lenders with bad credit are that they charge high-interest rates and substantial origination fees.
Don't get scammed!
If you are desperate for a loan and are getting turned down repeatedly, you may be lured by an ad you see that says "Bad Credit Debt Consolidation Loans. No one is turned down." There is no such thing as a lender who makes loans to everyone. No one is a more natural victim to scam than someone who needs something desperately. The most common scam is charging a fee for your application. Never pay a fee in advance for a loan.
Betsalel Cohen
Bills.com financial expert
What our expert says...
Despite what some experts say, we believe that debt consolidation loans can be a great option. If you can lower your interest rate and set affordable monthly payments, you can quickly get out of debt and save money. However, if you are in a hardship or can’t qualify for a loan, consider other debt consolidation solutions like a debt management plan or debt settlement.
Bad credit debt consolidation loan alternatives
If you have bad credit, a debt consolidation loan is not your only option. Three factors to consider when looking for an alternative to a debt consolidation loan with bad credit are the amount of debt you have, the amount you can afford to pay each month, and the level of your financial hardship.
Here are some bad credit debt consolidation loan alternatives that you can consider to improve your situation.
Home Equity Loan: If you own a home, have sufficient equity, and wish to lower your monthly payment, consider a home equity debt consolidation loan. You need to have a credit score of about 580. Also, your total loan to value ratio cannot exceed 80%. For example, if your home is worth $300,000, then your current mortgage and the additional new home equity loan cannot exceed $240,000. (Some lenders will go up to 85% LTV).
The following are not credit-based solutions.
Snowball Debt Payoff: If you can afford to make a significant monthly payment, but don’t qualify for a short-term debt consolidation loan, consider the debt snowball method. You pay off your debt quicker by adding to your current payments. Even though you don’t get a lower interest rate, you pay off your loan quicker and save money by making additional payments on your principal.
Debt Management Plan: If you can afford your minimum payments but are looking to reduce your interest rates, a debt management plan might help. A debt management company negotiates with your creditors (mainly credit card companies) to lower interest rates and fees for a monthly fee. You make one consolidated payment into a special account. The debt management company then transfers the appropriate sum to each creditor. Similar to a bad credit debt consolidation loan, your pay off your debt in about five years.
Debt Settlement: If you are in financial hardship and can't afford your monthly payments consider a debt settlement program. To qualify, you will need to show hardship. Otherwise, your creditors will most likely not negotiate an agreement. You stop paying your creditors, and your credit takes a hit. Your creditors potentially continue with collection efforts, including collection letters, calls, and a possible lawsuit. You make monthly payments into a special account in your name. When there are sufficient funds, the debt settlement company then negotiates a settlement. Your total costs might be around 75% of your original debt.
Bankruptcy: A more extreme debt consolidation loan alternative is bankruptcy. If you are in undue hardship, you can discharge your qualifying debts through Chapter 7 and hold on to protected assets. Chapter 13 bankruptcy is a court-supervised payment plan, whereby you pay back your creditors over four to five years. Bankruptcy protects you from lawsuits during this period. Bankruptcy is complicated, and it is recommended to consult with an experienced bankruptcy lawyer.
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