Best Debt Consolidation Loans for Bad Credit

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• What is a debt consolidation loan for bad credit?

• Pros and cons of debt consolidation loans for bad credit

• Where to get a debt consolidation loan with bad credit

• How to get a debt consolidation loan with bad credit

• 3 tips for getting approved for a debt consolidation loan

• Other ways to tackle debt if you have bad credit

What is a debt consolidation loan for bad credit?

A debt consolidation loan is a personal loan you use to pay off multiple forms of debt, such as credit cards, medical bills and unsecured loans. You’re then left with one monthly payment — your new consolidation loan — which can help simplify and speed up getting out of debt.

Debt consolidation loans are available to borrowers across the credit spectrum. Though borrowers with good and excellent credit (690 credit score or higher) will likely qualify for lower interest rates, there are still options for borrowers with bad credit (629 credit score or lower).

» MORE: How to get a debt consolidation loan with bad credit

Pros and cons of debt consolidation loans for bad credit

Like with any financial decision, it’s important to carefully weigh the pros and cons of debt consolidation before applying for a loan.

Pros of debt consolidation loans for bad credit

• You’ll save money on interest: By consolidating your debts under a loan with a lower interest rate, you’ll save money on interest. You can even apply that savings back to your debt to speed up your payoff time and get out of debt faster.

• You’ll have fixed monthly payments: Debt consolidation loan payments are fixed, meaning you’ll owe the same amount each month, which makes it easier to budget for.

• You can build credit: Reputable lenders will report your payment history to the credit bureaus, so paying off your consolidation loan on time can help build your credit score.

• You’ll have a clear finish line: By taking out a loan with a set repayment term, you’ll know exactly what day you’ll be debt-free, which can be especially motivating. 

Cons of debt consolidation loans for bad credit

• It may be hard to get a low enough rate: Borrowers with bad credit may have a hard time qualifying for a lower rate than their current debts. (See ways to improve your chances of approval below.)

• Your credit will take a small hit: Applying for a debt consolidation loan will require a hard credit inquiry, which temporarily knocks a few points off your credit score.

• Consolidation doesn’t address the root causes of debt: Consolidating your debts won’t fix issues like overspending or not making enough income to cover ex

» MORE: How do debt consolidation loans work?

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Where to get a debt consolidation loan with bad credit

You can get a debt consolidation loan for bad credit from a credit union or online lender.

Credit unions

Credit unions are one of the best places to look for a debt consolidation loan if you have bad credit. That’s because credit unions are willing to lend to borrowers with lower credit scores while still offering affordable rates. You will need to become a member of the credit union before applying, but this process is usually quick and affordable.

» MORE: Top credit unions for personal loans

Online lenders

Online lenders also lend to borrowers with bad credit. Though their rates could be higher than some credit unions, they offer convenient perks. For example, online lenders will typically fund a loan quickly — sometimes the same day you’re approved — and many send the funds directly to your creditors, saving you the step of paying off the debts yourself.

» COMPARE: The best debt consolidation loans

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How to get a debt consolidation loan with bad credit

1. Know how much debt you have and what rate you need to qualify for

Knowing how much debt you’re carrying tells you the loan amount you need to apply for. You can use NerdWallet’s debt consolidation calculator to plug all your existing debts into one place and get the total amount.

You can also use the calculator to see the combined interest rate. Look for a debt consolidation loan with a lower annual percentage rate, or APR, than your existing debts. This saves you money on interest. Though rates on debt consolidation loans vary, borrowers with a credit score of 629 or lower may qualify for an estimated average APR around 21.35%, according to anonymized data from users who pre-qualified with NerdWallet.

2. Pre-qualify with lenders to compare loan offers

Before formally applying for a debt consolidation loan, you’ll first want to pre-qualify, which you can do with most online lenders.

Even if you ultimately go with a credit union, it’s still smart to see your options. Since pre-qualifying does not include a hard credit check, you can check potential rates, loan amounts and terms with no risk to your credit score.

» MORE: Pre-qualify with lenders on NerdWallet

3. Fill out the loan application

Once you’ve decided on a lender, you’ll need to fill out an application. Most applications are online and require personal information like name, address and Social Security number; contact information; income and debts; and desired loan amount, loan purpose and repayment term.

After you submit the application, you’ll wait to hear from the lender whether you’re approved or denied. Some decisions are instantaneous, while some take longer, especially if more documentation, like proof of employment, is required.

4. Receive funding and pay off your creditors

If you’re approved, look carefully over your loan agreement before signing. Once you sign the agreement and receive the funds in your account, send the money to your creditors. This is the most important step. If you fail to pay off your creditors, you could end up even more in debt than before.

If the lender offers to send the funds themselves, ask for a confirmation or check with your creditors to make sure all your debts have been paid.

5. Make payments on your new loan

It’s important to make a plan for tackling your new consolidation loan. Create a budget that takes this monthly payment into account and stick to it until the loan is paid off.

Try to keep your credit card balance at or near zero while you pay off your consolidation loan. Avoid closing the accounts, which can lower your credit score.

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» MORE: How to boost your chances of loan approval

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Other ways to tackle debt if you have bad credit

A debt consolidation loan isn’t your only option for getting out of debt if you have bad credit.

DIY debt payoff strategies

You can take a do-it-yourself approach to paying off debt with two time-tested strategies: the debt snowball or the debt avalanche method.

With the debt snowball method, you tackle your smallest debt first and then work your way up, building momentum as you go. With the debt avalanche, you tackle your most expensive debt first, meaning the one with the highest interest rate, and apply your savings to the next highest and so on.

Credit counseling

If you’d like help with tackling your debt instead, credit counseling can be a great resource. Credit counselors at a reputable non-profit can help negotiate your interest rates down and put you on a debt management plan. These plans can help you get out of credit card debt in three to five years and come with small monthly fees.

Debt settlement

Debt settlement is the process of settling your debts for less than you owe, usually with the help of a debt settlement company. A debt settlement company will ask you to stop making payments on your debts and instead funnel that money into a holding account. Once a debt is significantly overdue, the settlement company will approach your creditor with a settlement offer, using the money in the holding account. Debt settlement is risky, though, so explore alternatives first.

Bankruptcy

If you have significant debt (more than 40% of your income) and you don’t think you can pay it off within five years, bankruptcy is another option. This wipes out most unsecured debts, but it’s hard on your credit score. You’ll want to consider other alternatives first.

» COMPARE: More options for debt relief