The Best Debt Consolidation Loans For Bad Credit

Debt consolidation is one of the best ways to simplify your debt repayment and — if you can qualify — secure a competitive interest rate. If your credit needs work, shopping around for debt consolidation loans becomes even more critical. Finding the best lender for your needs can help you get approved and on the path to a zero balance.

Best debt consolidation loans for bad credit

About the lender

Avant is best if you need to consolidate a small to midsize debt load. The maximum amount you can borrow is $35,000 — the lowest on our list of debt consolidation loans for bad credit. If approved, you could receive funds as fast as the next day. Plus, Avant allows you to manage your loan via its mobile app.

Pros

• No prepayment fee.
• Mobile app.

Cons

• High maximum rates.
• Administration fee up to 9.99%.
• Lower maximum loan amount.

About the lender

Best Egg can send funds directly to your creditors, which streamlines the debt consolidation process. Once approved, you can receive funds as early as the next business day.

Pros

• Direct payment to creditors.
• Option to prequalify.
• No prepayment penalty.

Cons

• Origination fee up to 9.99%.
• High maximum rates.
• No autopay discounts.

About the lender

Upstart might be a good choice if you have a thin credit profile — you don’t necessarily need a credit score to qualify. The lender uses an untraditional approval model, looking at factors outside of your credit, like your education and employment.

Pros

• Considers nontraditional factors.
• Fast funding.
• Considers nontraditional factors.

Cons

• Origination fee up to 12%.
• No joint or cosigner option.
• Limited repayment terms.

How to get a debt consolidation loan with bad credit

Lenders base loan decisions largely on the condition of your credit. Generally, the lower your credit scores, the higher the interest rates lenders will offer you on financing. FICO defines bad credit as a score that’s 579 or lower, though many lenders set the threshold for bad credit higher.

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, and many list credit score requirements on their websites, which can help narrow down your choices.

2. Review your finances

You may not be eligible for a loan if your credit scores are too low, but loan approval hinges on other factors, too. Perform a financial health check-up to understand your debt-to-income (DTI) ratio. You can nudge your DTI in the right direction by creating or revisiting your budget. Trimming your current expenses, paying off other debt and taking on side hustles are all helpful strategies.

There are lenders that specialize in bad credit loans, and many list credit score requirements on their websites, which can help narrow down your choices. Do your research and compare loan amounts, repayment terms and fees from multiple sources. Prequalify with at least three lenders to view your potential rates without a hard credit check. This process can take time, but it might save you hundreds, if not thousands, of dollars.

3. Prequalify with multiple lenders

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.

4. Consider a cosigner, joint loan or a secured loan

To increase your loan approval odds and chances of landing a lower rate, use a cosigner or co-applicant or shop around for a secured personal loan.

• Cosigned loans. Cosigners share legal responsibility for the loan, but not ownership. Signing the loan documents with a creditworthy family member or friend can both increase your approval odds and lower your interest rate.
• Joint loans. Joint applicants (also called co-borrowers or co-applicants) take on the debt with the primary borrower and have joint ownership of the balance.
• Secured loans. These 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.

Pros and cons of a debt consolidation loan with bad credit

Pros

• Potential to get a lower interest rate. Some borrowers may qualify for lower interest rates than what they are currently paying on their credit cards or loans.
• Simplify debt payments. Instead of making multiple payments each month to different lenders, you can make one payment to the same company.
• Allows credit cards to remain active. While most debt management plans require you to close all credit cards enrolled in the consolidation program, a debt consolidation loan does not have this requirement.

Cons

• Qualifying for a debt consolidation loan with bad credit can be challenging. Borrows with low credit scores may be viewed as risky, which can limit your terms and options.
• May not find a lower interest rate. Borrowers with low credit scores may only qualify for consolidation loans with the same or higher interest rates.
• Fees may force you to borrow more than you owe. Orientation fees and other charges are typically rolled into the loan, which can increase the balance borrowed or deducted from the proceeds.

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 have with them 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 bank. However, online lenders typically charge high APRs and origination fees for bad-credit debt consolidation loans.

Alternatives to consolidating debt with bad credit

If you cannot get a debt consolidation loan, you have other options. If you haven’t already, start by trying to adjust your budget and spending habits to pay off your debt. Homeowners with equity can see if they qualify for a cash-out refinance or home equity loan to get funds that can be used to pay off debt. 

If budget adjustments and alternatives for getting extra cash don’t work, it may be time to consider debt settlement or filing for bankruptcy. You can contact lenders to see if they are willing to negotiate your debt at all. They may be willing to offer you a discount if you pay it all off now or offer you a payment plan. Filing for bankruptcy means going to federal court to get debts discharged, but it should only be used if you have exhausted all other options. 

Balance transfer credit cards

A balance transfer credit card lets you move high-interest debt to a new card with a lower rate, often a 0 percent intro APR for a limited time. This can help you pay down your balance faster, since more of your payment goes toward the principal instead of interest.

Most cards charge a balance transfer fee, and the promotional rate only lasts for a set period. If you still have a balance after that, a higher interest rate will apply, so it is important to have a plan to pay it off before the intro period ends.

Credit counseling

Credit counseling is a service that pairs you with a professional who reviews your finances and helps you create a plan to manage debt. They can help you build a budget, understand your credit, and may recommend a debt management plan to simplify payments and potentially lower interest rates.

Sessions are typically personalized based on your income, expenses, and goals, and many nonprofit agencies offer low-cost or free support. The goal of credit counseling is not just to tackle current debt, but to help you build better money habits and avoid future financial stress.

401(k) loans

A 401(k) loan lets you tap into your retirement savings and pay yourself back over time, usually within five years. There’s no credit check, and as long as you stick to the repayment schedule, you won’t owe taxes or penalties.

Still, it’s not risk-free. The money you take out stops earning investment returns, and if you leave your job or fall behind on payments, the remaining balance could be taxed and penalized.

Debt relief or debt settlement

Debt settlement plans are when you negotiate with a creditor to pay less than what you owe, often in a lump sum, and have the rest forgiven. It’s typically used for unsecured debt, when keeping up with payments is not a realistic possibility. While it can reduce what you owe, it comes with significant trade-offs. It can damage your credit, involve fees, and there’s no guarantee your creditors will agree, so debt settlement is usually seen as a last-resort option.

Bottom line 

Getting a consolidation loan with a less-than-stellar credit score may be more difficult, but it’s not impossible. Certain lenders cater to borrowers with low credit scores, or you can apply for a traditional personal loan with a cosigner or applicant. Regardless of whichever option you choose, make sure the loan is legitimate. It’s not uncommon to see loans with predatorily high rates presented as bad credit loans.