How to get a debt consolidation loan with bad credit

There are ways to consolidate your debt no matter what your credit score may be. (iStock)

Debt consolidation loans are one way that consumers with multiple debts can start to pay off their balances. With these loans, all debts are rolled into one account, allowing borrowers to make just a single monthly payment until the balance is paid off.

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This simplifies the budgeting and repayment process and, in many cases, can even lower the costs of borrowing the money entirely.

But debt consolidation loans often require high credit scores. For consumers who don’t fall into this category, read on.

How to get a debt consolidation loan with bad credit

According to Howard Dvorkin, CPA, and chairman at Debt.com, consumers will typically need a FICO score of at least 700 to qualify for an affordable debt consolidation loan. Borrowers with scores under this threshold aren’t without options, though.

“For those looking to get a consolidation loan with bad credit, a loan cosigner can help them consolidate without an issue,” Dvorkin said. “However, consumers with bad credit should be extra careful when shopping for a loan because predatory lenders usually lend to borrowers with bad credit."

Shopping around for lenders is critical for all borrowers — but particularly those with low credit scores. Use an online marketplace like Credible to make sure you’re getting the best rate and lender for your needs.

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How to increase your credit score

Fortunately, credit scores are always in flux, so consumers with low credit scores can improve theirs before applying for a loan.

There are several ways to do this, including:

  1. Reducing your debts and credit card balances
  2. Paying your bills on time, every time
  3. Correcting errors on your credit report
  4. Asking for a credit line increase
  5. Getting added as an authorized user on a high-credit person’s account
  6. Avoiding new loans and credit cards
  7. Keeping long-standing accounts open (even when paid off)

With a debt consolidation loan, you could potentially save on interest, which would both lower the total amount that you end up paying over time and help you pay down your debt faster. To get a sense of what personalized loan options are available to you, visit Credible to compare rates and lenders.

Amid the COVID-19 pandemic, the three major credit bureaus are offering free weekly credit reports to all Americans (through April 2021). Consumers looking to improve their scores should use these reports to monitor their progress.

Other options

Debt consolidation loans aren’t the only option for consumers dealing with lots of debt. Balance transfer cards can also be a strategy to consider.

Balance transfer cards allow borrowers to transfer their debts to one single credit card — often one with a low- or zero-interest promotional period. If the borrower can pay these off in that time period, it can mean significant savings in the long run.

If you're looking to eliminate debt quickly, a balance transfer credit card could be just what you need. Consider using an online marketplace like Credible to compare some of the top balance transfer cards side by side and pick the right one for you.

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Types of debt to consolidate with a personal loan

Many consumers use debt consolidation personal loans to address high credit card balances, but according to Dvorkin, these aren’t the only options for debt consolidation.

“Most people think that debt consolidation loans can only take care of credit card debt, but consumers can consolidate debt from unpaid medical bills, collection accounts, and payday loans,” Dvorkin said. “There is also consolidation for certain types of loans such as federal student loans, private student loans, and auto loans.”

If you would like to get a sense of what debt consolidation loan options are available to you, visit Credible to compare rates and lenders.

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Pros and cons of consolidating debt with a personal loan

Consolidating one’s debts can have some significant benefits.

Pros

  • It streamlines repayment: It means just one payment comes due per month, making budgeting and money management easier.
  • Lower payments and a reduced interest rate: For those with good credit scores, this could be another benefit. “If someone has trouble paying the minimum credit card statements, and they have up to $25,000 in credit card debt and a decent credit score, a consolidation loan can lower their monthly payments, reduce their interest rate and help them get out of debt faster,” Dvorkin said. “Debt consolidation is better than debt settlement, and it can help preserve a good credit score if done right.”

To take advantage of these benefits, head to Credible to apply for a debt consolidation loan today.

Cons

On the downside, debt consolidation loans can also be risky — especially to those who have poor credit habits.

  • Potentially worsen your financial hardship: Failing to make payments on the loan or, worse yet, using the loans for other purchases (not just paying off those debts) can get you in more financial trouble.

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The bottom line

Sky-high debts aren’t insurmountable. Thanks to debt consolidation loans and balance transfer cards, there are ways out — even with poor credit.

For consumers who do opt for a consolidation loan, shopping around is key (Credible can help), as is using a detailed loan calculator to ensure those payments will be affordable. Talking to an experienced loan officer or financial advisor is also wise.

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