How To Consolidate Debt with Bad Credit

A senior couple looks worried as they read financial statements.
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The last few years have not been fun financially for many people. Whether it was job loss, rising inflation, high-interest rates or unexpected expenditures, your pocket has taken so many hits, it is no surprise you may find yourself in debt.

Any amount of debt can feel inescapable and crushing, but worry not — there are options for you to get out from under it, even if you have bad credit

Debt Consolidation Loans 

If you have ever wondered what a debt consolidation loan is, you are not alone. This type of loan combines all of your individual debts into one single monthly payment.

You may even save money with this type of debt management plan, as this single payment may come with a lower interest rate than paying off loan amounts individually. However, the interest rate on your debt consolidation loan will vary depending on your credit history and other unique financial factors.

Pros and Cons of Debt Consolidation

Pros Cons
Simplified and faster way to pay off your debt through a fixed payment Upfront costs such as balance transfer fees or loan origination fees
Good for improving and rebuilding your credit Is not a cure-all for your financial issues and won’t fix bad spending habits
Lower interest rates with consolidated repayment term High penalties for missing a payment

How To Get Debt Consolidation Loans With Bad Credit 

The one comforting thing about having bad credit is that you can always change it. Whether it is from credit card debt or just a result of a poor debt-to-income ratio, applying for a debt consolidation loan could be the first step on your road to recovery.

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To get the loan, you will still likely have to prove you have a solid history of on-time payments and sufficient income. However, each lender has their own set of requirements so it never hurts to check. Here are some helpful tips for getting a debt consolidation loan with bad credit:

  1. Do your research and find the right loan for you.
  2. Secured loans may be the better option.
  3. Monitor and improve your credit score.

1. Do Your Research

As any titan of business or fictional mob boss will tell you, never accept the first offer. This rule carries over to loans, so make sure to shop around and find the best deal to help you get out of debt.

It may take a bit more time and legwork to check with a variety of lenders, banks or credit unions. However, when the point is to get out of debt, don’t spend more money than you should. Comparison shopping around for the best loan could save you thousands of dollars.

2. Secured Loans

A secured loan differs from a personal loan in that it usually requires collateral. This collateral could be any asset ranging from your car to your home. These are typically higher-valued items, as the collateral has to cover the loan if you default. 

This may sound intimidating, but if you are having trouble getting an unsecured loan due to your poor credit history, this may be the solution, since secured loans are much easier to acquire. These loans also tend to have a better interest rate, because they are leveraged against the collateral you have put up.

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3. Your Credit Score

Stay vigilant in monitoring your credit score. Unfortunately, a lower credit score usually dictates a higher interest rate on your loan, so applying when your credit score is higher could yield better results. This isn’t always an option, but there are bad-credit lenders out there, some of whom accept credit scores in the 500s, which will help you qualify for a debt consolidation.

If you have some wiggle room in your debt repayment timeline, you may want to consider waiting until your credit score is better before applying for a debt consolidation loan.

Where You Can Get a Debt Consolidation Loan With Bad Credit

Many lenders in the financial world can assist you with a debt consolidation loan. Before committing to one, make sure you shop around. For reference, here are two common options:

  • Local banks or credit unions: Applying for a debt consolidation loan from your local bank or credit union is like applying for any other kind of personal loan. They will check your credit but may offer more leniency if your score isn’t quite where it should be, as you have a previous relationship.
  • Online lenders: Many online lenders offer bad-credit loans and you can apply easily with less paperwork. Generally, these lenders also let you compare rates without impacting your credit score, and there is a quick turnaround time of a few business days between when you apply and when you receive your funds.

Final Take: Managing Your Debt Consolidation Loan

You’ve done it — you have fast-tracked your way to a more financially stable future. Now that you have your debt consolidation loan, make sure to stay on top of it without defaulting or slipping into old habits that could even increase your debt.

Make sure to start paying off the debt immediately and consistently with on-time payments. It often helps to create a budget you stick to and pay close attention to your credit reports. The only way to pay off debt is one step at a time, and you have just taken your first one.


  • Can I apply for debt consolidation with bad credit?
    • Yes, you can apply for debt consolidation with bad credit. Though you might want to work on building your credit first to get a better rate, there are bad-credit lenders out there. Your local bank or credit union could even be an option.
  • Does consolidating credit hurt your score?
    • Debt consolidation can affect your credit, as the lender will do a hard inquiry credit check, which could slightly lower your credit. The good news is that the hurt it puts on your credit score is only temporary.
  • How much debt do you need to consolidate?
    • There is no specific amount of debt you need to have to get a debt consolidation loan, since lenders don't typically require that. However, for math's sake, your combined debt payments should not exceed 50% of your monthly income.
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