How to Consolidate Debt With Bad Credit: Strategies and Options 

When high-interest bills start to pile up, finding a way out may seem overwhelming, especially if your credit is not so great. The good news is that there are debt consolidation options available to you, even if you have bad credit. Interest rates are usually higher than for those with better credit scores but there can still be cost-saving opportunities available. Uncovering these opportunities involves knowing your credit score, shopping around, and comparing debt consolidation options with credit card balance transfer offers, personal loans, and, if you’re a homeowner, home equity loans. Read on for how to consolidate debt with bad credit and get your bills under control. 

Key takeaways

  • Check your credit reports and credit score to see where you stand and correct any errors.
  • Compare different debt consolidation options, including personal loans, balance transfer credit cards, and home equity loans.
  • Consider alternative options if you don’t qualify for traditional debt consolidation loans or credit cards.

Understanding Your Credit Situation

Before embarking on any debt consolidation method, it’s important to assess your credit score and credit history to see where you stand. Lenders use your credit score and history to evaluate how risky it is to loan you money. The higher your credit score, the better.

If you have bad credit, you could still be eligible for certain debt consolidation options, but the interest rate and other terms may not be as favorable. That being said, the terms could still be better than what you currently have with your various creditors. 

You can review your credit history by obtaining a free copy of your credit report from the three major credit reporting agencies at If there are errors, you can request they be corrected, which could improve your credit score.

Your credit score is not included in your credit report, so you have to request it separately. Many banks and credit card companies will provide free credit scores and they also available free of charge from other sources.

Debt Consolidation Options for Bad Credit

Debt consolidation is the process of combining several debts into a single debt. Options include a debt consolidation loan, transferring all of your credit card debt to a new card, or taking out a home equity loan. Having just one payment makes it easier to manage, plus you often save on interest. Consolidating debt may be harder for those with bad credit, but it is still possible.

Here is how each option works: 

Debt Consolidation Loans 

Debt consolidation loans are typically personal loans from a bank, credit union, or online lender. The lender will provide a lump sum of money that you can use to pay off your creditors. After that, you repay the loan over a set period through monthly payments.

These loans have many benefits, including one monthly payment, generally lower interest rates than credit cards, and a specific time frame for paying off the loan so you know when your debt will be behind you. 

However, it could be hard to qualify for a debt consolidation loan if your credit score doesn’t meet lenders’ eligibility requirements. Also, even if a lender is willing to make a loan, the lower your credit score, the higher the interest rate will typically be. In addition, the lender may require a co-signer, someone who agrees to pay the loan if you cannot, in order for you to qualify. 

Even so, you could save money with a debt consolidation loan because it will most likely reduce what you pay in interest and late fees for other accounts, particularly credit cards. 

Balance Transfer Credit Cards 

Many credit card companies offer cards that charge low or even zero interest for a period of time if you transfer the balances from your existing credit cards. This can not only consolidate your debt but reduce your interest payments and allow you to pay off your card debt faster. That is, provided you pay off the balance before the promotional rate expires and the card’s regular—and likely much higher—interest rate kicks in. 

Unfortunately, if you have bad credit, it could be difficult to qualify for one of these cards. And if you do qualify, you might find it challenging to pay off the balance before the promotional rate ends. Also, if you have bad credit, you may not qualify for a credit card with a balance limit sufficient to accommodate all of your debt. So you may still have to deal with multiple accounts. 

Balance transfer credit cards typically offer low introductory interest rates for 12 months or more. For those who qualify it’s important to pay down the transferred amount as much as possible during this period as any remaining balances will be subject to a much higher rate once the introductory offer expires.

Home Equity Loans 

If you own your home, you might qualify for a home equity loan to consolidate your debts, leaving you with one payment to manage. For instance, if your home is valued at $200,000 and you owe $140,000 on it, your home equity is $60,000. Typically, lenders will let you borrow up to 80% of your home equity. In addition, home equity loans often have lower interest rates than credit cards, so you could save on interest. 

Bear in mind, however, that with a home equity loan, your home serves as collateral. That means if you don’t repay the loan as agreed, you could lose your home to the lender through foreclosure. 

How to Get Approved for Debt Consolidation

If you’re planning to apply for one of these debt consolidation methods, there are a few steps you can take to improve your likelihood of getting approved.

  1. Review your credit report. And correct any errors you find.
  2. Shop around for the best offers. Be sure to check with banks, credit unions, and online lenders as well as several different credit card companies. 
  3. Enlist the aid of a co-signer, if necessary. Talk with someone you trust to see if they would be willing to join you on a loan or credit application. 

Finding the Right Debt Consolidation Solution

When shopping around for the best debt consolation solution, you’ll want to take the time to compare all the loan terms and also check out the lender. 

Interest Rates

On the surface, comparing interest rates sounds easy. You want the lowest rate, right? But it’s not that simple. A loan with a low interest rate might have a longer repayment period, meaning that you’ll pay more interest in total before it is finally paid off. For that reason, it’s important to calculate how much interest you would pay over the life of the loan to see which option would save you the most money. 

Repayment Terms 

Read and compare the exact terms of each debt consolidation solution. How long do you have to repay the loan? Are there prepayment penalties if you want to pay the balance off early? What happens if you ever have a late or missed payment? The answer to these questions can help you zero in on the best deal for you. 

Customer Reviews 

When consolidating your debt, it’s crucial to deal with a reputable lender or credit card company. If you aren’t already familiar with a particular one, be sure to check its Better Business Bureau rating and read any customer reviews online. This could help you steer clear of companies that don’t treat their customers well. 

Applying for a Debt Consolidation Loan With Bad Credit

Applying for a debt consolidation loan with bad credit is a relatively straightforward process. 

  1. Gather all necessary documents. This includes pay stubs, tax returns, bank statements, and a government-issued identification. 
  2. Fill out the application. These are often available online. Or you may have to pick up one at your local bank or credit union. 
  3. Submit your application. Submitting an application may be as simple as hitting a “submit” button online or dropping it off with a loan officer at your bank. 
  4. Stay in communication with the lender. When reviewing your application, the lender may have questions or request additional information. Try to respond in a timely manner to avoid delays with the application. 

Following these steps will hopefully lead you to getting approved for a debt consolidation solution. 

Bad-Credit Personal Loan Options for Debt Consolidation

Here are three lenders that offer debt consolidation loans with competitive rates for borrowers with less-than-stellar credit.

Lender Interest rate Term Amount Prepayment penalty Origination Fee
Prosper 6.99%- 35.99% 24-60 months $2,000-$50,000 No 1%-7.99%
Upstart 6.40%- 35.99% 36, 60 months $1,000-$50,000 No 0%-12%
Lending Point 7.99%- 35.99% 24-72 months $2,000- $36,500 No Up to 10%

Managing Your Debt Consolidation Plan

Once you have a debt consolidation plan in place, be sure to stick to it in order to pay off your debt. These tips might help:

  • Set a budget. Once you know how much your monthly payment is going to be, create a budget that allows you to meet all of your monthly obligations. When tempted to stray from your budget, remind yourself that you are getting closer to being debt-free. This will help keep you focused on paying off your debt. 
  • Make payments on time. Making your debt consolidation payments on time will go a long way in rebuilding your credit score. It also means you won’t have to pay extra in late fees. 
  • Don’t take on additional debt. Paying off your credit cards through debt consolidation could leave you tempted to use those cards again. But this could lead to a cycle of accruing more debt that you are unable to pay off. 

Alternatives to Debt Consolidation Loans

For individuals with bad credit who may not qualify for traditional debt consolidation loans or balance transfer credit cards, there are some alternatives:

Credit Counseling Programs

Talk with a certified credit counselor to see how you can create a realistic plan to pay off your debt. Many credit counseling agencies also offer workshops where you can learn more about managing your money. 

Debt Management Plans

A debt management plan is an agreement negotiated between a credit counselor and your creditors to get your bills paid off. This often includes waiving late fees, lowering interest rates, and extending the repayment period. It does not reduce how much you owe. 

Negotiating With Creditors

You can contact your creditors, explain your situation, and ask them to work with you to pay your debt. This does not require good credit, an application process, or paying any fees. Many creditors are willing to work with you by lowering interest rates, waiving late fees, or giving you more time to repay the debt. 

What Is Considered a Bad Credit Score?

A bad credit score is usually 670 or lower.

What Is the Lowest Credit Score to Get a Consolidation Loan?

That depends on the lender. Some lenders are willing to work with borrowers with poor credit, while others aren’t. You may need to shop around.

What Is the Best Debt Consolidation Option for Individuals With Bad Credit?

What’s best depends on the individual and their financial circumstances. For example, some people want a longer repayment period, while others want the lowest interest rate possible. 

What Is the Most Affordable Debt Consolidation Option for Individuals With Bad Credit?

Affordable is also relative to the individual. For instance, some people may see a low monthly payment over a longer time period as more affordable, at least in the short term. But others may see paying the least amount of interest in total as being more affordable. 

Why Do I Keep Getting Denied for a Debt Consolidation Loan?

It’s possible that you need to improve your credit score, reduce your debt-to-income ratio (how much debt you owe each month in relation to your monthly gross income), or establish a longer work history. If you’re turned down for a loan, the federal Equal Credit Opportunity Act requires that the lender tell you why.

The Bottom Line

Consolidating debt when you have bad credit can be difficult but not impossible. You may qualify for a debt consolidation or home equity loan or a balance transfer credit card. Before you apply, it’s important to clean up your credit report, research lenders, and shop around for the best solution for you.