Best debt consolidation loans for bad credit of May 2024

While the best loan offers are reserved for those with good credit, it’s often borrowers who are struggling with their credit who need debt consolidation the most. Debt consolidation offers many benefits, such as reducing the number of debt payments you make each month and the possibility of a lower interest rate and lower payment.

If your debt has become overwhelming, but your credit score makes loan approval difficult, try these debt consolidation loans for bad credit.

Compare rates for debt consolidation loans with bad credit of May 2024

Best debt consolidation loans for bad credit

How debt consolidation works is by combining multiple debts into one larger debt. It’s often done with a personal loan to consolidate high-interest debt — credit cards, for example — into one lower-interest loan.

Debt consolidation doesn’t have to be outside of your reach if you have bad credit. We’ve rounded up the best debt consolidation loans for bad credit to help you access the money you need and establish a timeline to become debt-free.

Learn more: How Does Debt Consolidation Work?

Methodology

We evaluated the best debt consolidation loans for bad credit based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.

How to compare debt consolidation loans for bad credit

If you have bad credit, it’s important to shop around and find the best loan for your situation. Most lenders provide the option to prequalify, without any impact to your credit score. But prequalification is not an offer of credit, and your final rate could be different. Once you apply, the lender will conduct a hard credit pull, which could ding your score by a few points temporarily. Here are some factors to pay attention to when shopping for a loan:

• APR: The annual percentage rate (APR) is the total cost of borrowing, which includes the interest rate and any upfront fees the lender charges (like an origination fee). The best APRs are generally reserved for those with good credit, and a bad credit score could result in a higher APR. However, by comparing rates across multiple lenders, you can find the best one available to you.
• Fees: Many lenders charge upfront origination fees, which can range from 1% to 12% of the loan amount, and are typically deducted upfront from the loan amount. These are accounted for in the APR. Other fees often include late payment fees and insufficient funds fees.
• Loan amounts: Each lender has its own minimum and maximum loan amounts. Some lenders may offer loans from $600 up to $100,000, while others lend no more than $35,000. Make sure to add up your debt, so you can narrow your search to lenders that can offer that amount. Just note that how much you're approved to borrow is also based on your income and the monthly payment the lender thinks you can afford.
• Repayment terms: Personal loan repayment terms are typically as short as 1 year and as long as 7 years, but they vary from lender to lender. A longer payment term will result in a lower monthly payment, but also more interest. Decide how much you can afford to pay each month, use that to choose the best repayment term, and find a lender that offers it.
• Customer service: Even if a lender checks all of your other boxes, you may want to avoid it if it has a bad reputation or poor customer service. You can get an idea of what a company’s service is like by reading online reviews on sites like the Better Business Bureau, looking at official complaints, and seeing what customer service methods and hours are available.

Check out: What is personal loan pre-approval?

What is debt consolidation for bad credit?

Debt consolidation is available to borrowers of any credit profile, but it’s often especially important for borrowers with bad credit. A bad-credit personal loan is one that specifically caters to borrowers with poor credit. It operates just like any other personal loan, but the lender may have more lax credit score requirements.

With debt consolidation, you take out a personal loan equal to the amount of high-interest debt you want to consolidate. You use the loan to repay your high-interest debts. Then, instead of making payments on each of your high-interest debts each month, you make just one payment on your new debt consolidation loan.

Debt consolidation loans are usually installment loans with fixed APRs and repayment terms. These features can make them easier to repay than credit cards. Because your APR is fixed, it makes it easier to reduce your balance.

Pros and cons of debt consolidation for bad credit

Debt consolidation can help improve your finances in several ways, but it also has some downsides to consider.

Pros

• Simplified finances: Debt consolidation allows you to reduce the number of monthly payments you have each month, simplifying your finances and making you less likely to miss a payment, especially if you set up autopay.
• Potentially lower APR: Personal loans often have lower APRs than credit cards, meaning you may be able to consolidate at a lower interest rate. The average APR for a 24-month personal loan was 12.17% in August 2023, according to Federal Reserve data, while the average rate for a credit card was 21.19%.
• Lower monthly payment: A lower rate combined with a longer repayment term could help lower your monthly payment, though a longer repayment term generally means you’ll pay more in interest compared to a shorter-term personal loan.
• Helps boost your credit: Debt consolidation can help boost a bad credit score as long as you make your payments on time each month. If you're consolidating multiple credit card balances, you could see your credit utilization drop sharply, which can also boost your score. Applying for a loan, however, can lower your score by a few points for up to two years.

Cons

• Harder to qualify: If you have bad credit, you may find that it’s more difficult to qualify for debt consolidation, with possibly fewer lenders to choose from.
• May come with fees: Some debt consolidation loans require upfront costs in the form of origination fees. Other potential fees include late fees.
• Potentially higher interest rate: A lower rate isn’t guaranteed with debt consolidation. If you have bad credit, you may end up with a higher rate than what you're currently paying.
• Continued cycle of debt: Debt consolidation can make it easier to pay off your debt, but it doesn’t address underlying problems that may have gotten you into debt in the first place. It could make the situation worse by clearing up room on your credit cards for new spending.

How to apply for a debt consolidation loan

Take the following steps to get a debt consolidation loan. Here’s how to apply:

1. Check your credit: Before applying for any loan, it’s important to know your credit score and anything on your credit report that might make it difficult to qualify. Knowing your credit score can help you narrow down your list of potential lenders.
2. Shop around for lenders: Search online for lenders that offer debt consolidation loans to borrowers with bad credit. This step can help narrow down your search to the lenders most likely to work for your situation.
3. Get prequalified: Many debt consolidation lenders allow you to prequalify for a loan. It doesn’t impact your score, and it gives you an idea of how much you might qualify for and at what rate.
4. Apply for your loan: Once you’ve prequalified, choose the best lender for your situation. You can then move forward with the full loan application, usually on the lender’s website. This is when you will undergo a hard credit check, as well.
5. Receive your loan funds: If your loan is approved, you can expect to receive your loan funds as soon as the same or next business day. You can have the loan funds sent to you or directly to your creditors, in some cases.

Debt consolidation loans for bad credit alternatives

If you have bad credit, debt consolidation may not be the best option for you — and may not even be available. Here are a few alternatives to consider:

• Debt repayment methods: You don’t necessarily need to take out a new loan to pay off your debt. If you can afford your monthly payments and have a bit of extra room in your budget, consider tackling your debt using either the debt snowball or debt avalanche method. The debt snowball method involves paying down your smallest debt first — while making all minimum payments on your others — and then applying that freed-up minimum payment to the next debt. The debt avalanche method works similarly, but focuses on paying down your highest-interest debt. The avalanche method can take longer to see any progress, but you’ll save more money on interest.
• Balance transfer: If you have high-interest credit card debt, you may be able to save on interest by transferring some or all of it to an existing credit card with a 0% introductory APR offer. If you can repay the balance within that offer period, you won’t pay any interest at all. Check your current cards for offers, since it's unlikely you'll get approved for a new 0% APR credit card with bad credit.
• Home equity loan or HELOC: If you’re a homeowner with equity, a home equity loan or line of credit can allow you to borrow against your home equity to pay off debt. Since either loan is secured by your home, it may be easier to qualify for relative to an unsecured personal loan. However, if you’re unable to make payments, you could lose your home.
• Debt management plan: A debt management plan, usually offered through a credit counseling organization, can help consolidate your debts. The credit counseling organization works on your behalf to negotiate lower interest rates or payments on your debts. You then make one monthly payment to the organization, which distributes it to your creditors.
• Bankruptcy: When you go through bankruptcy, your non-exempt assets are liquidated to pay off your debts (if you have any) or you enter into a 3-5 year repayment plan — depending on whether you file Chapter 7 or Chapter 13. Any debt that can’t be repaid through liquidation or a payment plan is usually forgiven. Though it can eliminate your high-interest debt, bankruptcy has serious implications for your credit score and can remain on your report for up to 10 years, making it difficult to obtain new credit such as an auto loan or mortgage. Only consider this a last resort and speak with an attorney about your options before proceeding.

FAQ

Are debt consolidation loans bad for your credit?

A debt consolidation loan may have a temporary negative impact on your credit, since it results in a new hard inquiry on your account, and it reduces the average age of your credit accounts. However, as you make on-time payments on the loan, you are likely to see your credit score improve. Debt consolidation may also rapidly improve your credit by immediately reducing your credit utilization — if you're using the loan to pay off credit card debt (and keep those accounts open).

Related: How does a personal loan affect credit score?

How can I improve my credit score?

The most effective long-term way to improve your credit score is to make on-time payments for all your bills each month. Other ways to boost your credit score include reducing your credit utilization, catching up on past-due accounts, limiting hard inquiries on your credit report, and maintaining your long-standing credit accounts rather than closing them.

Where can I get debt consolidation loans for bad credit?

If you already have a relationship with a traditional bank or credit union, start by asking if you qualify for a loan there. Additionally, consider online lenders that offer loans to borrowers with bad credit. Prequalify via a personal loan marketplace, like Credible's, to see which lenders might approve your application and where you may be able to get the best rates.

Read more:

• Ways to consolidate credit card debt
• How to use a personal loan to pay off debt
• How to consolidate debt
• Types of debt consolidation loans
• Best debt consolidation loans