Best Debt Consolidation Loans for Bad Credit

If you’re up to your ears in debt, your debt utilization ratio can negatively impact your credit score. A personal loan to consolidate debt has the potential to save you money on interest and facilitate faster repayment so you can improve your score. However, you typically need good credit to get a good rate on a personal loan. Since lenders view credit score as an indication of how likely you are to repay your loan, they charge higher rates to borrowers with bad credit to make up for the risk. 

Online lenders use a wider variety of information than traditional lenders to assess the likelihood of repayment. Some online lenders will offer debt consolidation loans despite your bad credit. 

Because personal loans can have a big impact on your finances, it’s important to spend a little time reviewing your options to make sure you’re not overpaying. Also, it’s usually worth comparing your rates across multiple lenders to ensure you’re getting the best deal for your credit history and financial situation.

Our team of financial experts ranked lenders based on our ratings methodology for personal loans and found the best debt consolidation loans for bad credit. This ratings methodology evaluates lenders based on loan length, APR, repayment terms, user experience, customer service, credit score history, banking and credit union use, and additional features.

Best Debt Consolidation Loans for Bad Credit in 2024

How to Choose the Best Debt Consolidation Loans for Bad Credit

Our experts used the following parameters when selecting our top picks for the best bad credit debt consolidation loans. As you compare options, it’s a good idea to consider these factors yourself:

• Loan features: Make sure the lender offers the amount you need and a repayment term that provides an affordable monthly payment for you. Also check for any limitations on how you can use the loan.
• Interest rates and fees: Aim for the lowest APR and the fewest fees that you can qualify for based on your credit history, and avoid any lenders that charge prepayment penalties.
• Application process: Evaluate the ease of the process, whether the lender allows you to check your rate with a soft credit pull, and the funding time if it matters to you.
• Qualification process: Eliminate any lenders you don’t qualify for based on minimum credit score and income requirements. Also pay attention to membership requirements. And if you need to apply with another borrower, make sure the lender you choose allows it.
• Customer support: Ensure you will be able to reach customer support at a time and through a channel that is convenient for you.
• Online user reviews: Look for any repeated complaints and check for overall customer satisfaction with the lenders you are considering.
• Perks and bonuses: Some lenders may offer payment flexibility, which can appeal if your budget is strained. Others may offer advanced technology that you can make use of. Pay attention to any extras provided as you narrow down your choices.

Main Features of The Best Debt Consolidation Loans for Bad Credit

Where Can You Get a Debt Consolidation Loan with Bad Credit?

• Banks: Your local bank may be able to offer you a debt consolidation loan, but banks typically have stricter criteria for approval than online lenders or even credit unions.
• Credit Unions: A credit union can be a good option for a debt consolidation loan, but not all credit unions will lend to borrowers with bad credit, and there are typically membership requirements associated with these loans.
• Online Lenders: Online lenders use a wider array of information and rely on technology when making decisions, so they’re typically more lenient with bad credit borrowers. Plus, they offer a more convenient online process with faster funding.

What Credit Score Do You Need for a Debt Consolidation Loan?

That depends. The goal with a debt consolidation loan is to get a lower APR than you are currently paying your creditors. If you have high-interest debt like payday loans or title loans, you may be able to consolidate that debt and save with a loan from a lender like Oportun or Upstart, even if you have bad credit or no credit history. However, to beat the average APR on a credit card, you’ll likely need good credit, or a FICO score of 670 or above. If you have fair credit, applying with collateral, a co-signer, or a joint applicant may help you get a rate low enough to beat your current credit card APR.

How to Get a Debt Consolidation Loan with Bad Credit

• Check your credit: Look at your free credit report to see where you stand, and dispute any errors.
• Narrow down your options: Start with this list and eliminate any options you don’t qualify for.
• Prequalify: Check your rate with any remaining lenders. This will only require a soft credit pull and will not harm your score.
• Select a lender: Choose the lender offering the lowest APR and fill out a formal application, supplying additional documentation as needed.
• Sign and accept: Once you’re approved, read the fine print, make sure you understand the terms, and sign your loan documents online.
• Receive the funds: Wait for the funds to be deposited into your bank account, which will typically happen within a few days.

What Are the Dangers of Debt Consolidation Loans with Bad Credit?

• Damage to your credit: A formal application for a debt consolidation loan will cause a small decrease in your credit score. Your score will recover quickly, but if you’re not approved, you may have even more difficulty with your next application for credit.
• Qualification issues: If you can’t get a lower APR than you’re currently paying, a debt consolidation loan is not worth it. Always do the math to make sure you’ll be actually saving money.
• Cosigner/joint applicant issues: If you need to apply with another borrower or co-signer to get a low enough rate, defaulting on the loan could damage your relationship with that person as well as their finances.
• Loss of collateral: If you need to put up collateral such as your vehicle title to secure a loan, you’ll risk losing that asset.

What to Do If You’re Not Approved

If you’re not approved, you have the option of applying with another lender that has more lenient eligibility criteria. If you still can’t get a loan or can’t get a low enough rate to make the loan worthwhile, the best thing to do is to pick a debt repayment strategy to use until your credit score improves. The fastest and cheapest method of paying off debt is the debt avalanche method, which involves tackling your high-interest debts first. You should reevaluate your budget and try to make room for extra payments to support this strategy. When your credit score improves, you can try applying for another debt consolidation loan.

How to Improve Your Credit Score

• Dispute any errors currently on your credit report
• Always pay at least the minimum payment amount by the due date
• Make extra payments to pay down debt and reduce your utilization ratio
• Ask for a credit limit increase to reduce your utilization ratio
• Avoid applying for new credit unless it’s necessary
• Avoid closing any old accounts unless you’re trying to avoid fees
• Consider debt consolidation or a balance transfer if it will help you pay down debt faster

Alternatives to Debt Consolidation Loans

• Balance Transfer Credit Card: Some credit cards offer a 0% introductory APR, which can be a good option if you can manage to repay your debt within 18 months. You’ll likely pay a balance transfer fee but will still save money on interest.
• Home Equity Loan or HELOC: These are forms of financing secured by the equity in your home. They’re often easier to qualify for than personal loans.
• 401(k) Loans: If your plan sponsor offers 401(k) loans, you can borrow from yourself to pay off debt without a credit check.
• Credit Counseling: Consider seeking help from a nonprofit credit counselor, who can help you get lower interest rates on your debts.
• Debt Settlement: You can offer to settle the debt for less than you owe, either on your own or with the help of a debt settlement company. We don’t recommend this option unless you are already several months delinquent and have a lump sum you can personally offer your credit card issuer. Debt settlement companies charge high fees and don’t always get results.
• Bankruptcy: This legal process can wipe out most of your debts, but it will destroy your credit, making life difficult in other ways.

Conclusion

Getting a debt consolidation loan with bad credit might feel impossible, but you have options. Take advantage of opportunities to lower your rate by putting forth collateral or applying with another borrower or co-signer. And prequalify with several lenders to make sure you’re getting the lowest rate before you apply. Finally, remember to calculate the total interest you’ll pay with and without the loan. If you can save money, it’ll be worth consolidating your debt. Always choose a repayment term you can afford, but don’t be afraid to make extra payments when you can — none of the lenders on our list charge prepayment penalties, and the sooner you can get out of debt, the better it’ll be for your credit.